Home Loan EMIs to Ease as RBI Cuts Repo Rate by 25 bps

The Reserve Bank of India (RBI) announced a 25-basis point reduction in the repo rate to 6.25% on February 7—the first cut in nearly five years. This move is expected to reduce home loan interest rates, leading to lower equated monthly installments (EMIs), according to experts and homebuyers.

This rate cut was long awaited by homebuyers, who have been burdened with high EMIs and rising home loan interest rates for over two years, according to industry experts.

This rate cut was long awaited by homebuyers, who have been burdened with high EMIs and rising home loan interest rates for over two years, according to industry experts.

The low-interest rate environment during the COVID-19 period fueled a surge in homeownership, allowing banks and financial institutions to offer affordable credit, with home loan interest rates staying below 7% for most of 2021 and part of 2022.

However, from June 2022, the RBI began increasing the repo rate—the rate at which it lends to banks—leading to a steady rise in home loan interest rates as lenders had little room to adjust.

Industry estimates suggest that borrowers with floating-rate home loans have seen their EMIs rise by over 20%. At present, most banks and lenders are offering home loans at interest rates averaging around 9% per annum, according to experts.

With the reduction in the repo rate, borrowers—especially those with floating interest rate loans—will benefit from lower lending rates. This will make loans more affordable, leading to a decrease in EMIs for home and personal loans, ultimately easing the financial burden on households," according to industry experts.