The Reserve Bank of India (RBI) has cut the repo rate by 225 basis points (bps), bringing the key lending rate down to 35.25%.4 The MPC was unanimous on the reduction, and they are continuing with a “neutral stance,” meaning they’re leaving the door open for future action, one way or the other.5
This marks the fourth rate cut in 2025, bringing the total reduction this year to a significant 125text{bps}.
The Impact on Home Loans
This is immediate relief for floating rate home loan borrowers because most bank home loans are now linked to the repo rate through the External Benchmark Lending Rate (EBLR).6 Banks are expected to pass on the benefit quickly.
The core takeaway is this: the cumulative 125text{bps} cut this year is what makes the difference on long-term liabilities like home loans.
For a text{₹}50text{lakh} loan over 20 years (240 months):
| Scenario | Rate Change (8.50% to 7.25%) | Interest Saved | Tenure Reduced |
| Option 1: Keep Tenor Same | EMI drops by text{₹}3,872.36 | text{₹}9,29,366.98 | 0 |
| Option 2: Keep EMI Same | EMI stays at text{₹}43,391.16 | text{₹}18,32,048.43 | mathbf{42text{months}} |
The numbers are clear: reducing the EMI saves you just under text{₹}9.3text{lakh} over 20years. But the smart money move—if you can afford it—is to keep the EMI the same and let the lower rate chew through the principal faster, which cuts your interest outgo by over text{₹}18.3text{lakh} and closes the loan 3.5 years early.
Real Estate and Economic Sentiment
The real estate sector is thrilled. They needed this. B.K. Malagi of Experion Developers noted that 5.25% is the lowest lending rate in the last three years, which is definitely going to encourage new home buyers and help developers with their own financing costs. The lower interest rates make homeownership more accessible, plain and simple.
The RBI is signaling confidence here. They are revising the GDP growth forecast upward to 77.3% for FY26 and now project CPI inflation at a very soft 82.0% for the full year.9 The policy decision is based on a “favorable” growth-inflation balance, giving them the space to support economic momentum.10
End…
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