The Reserve Bank of India (RBI) has a major involvement in the financial sector of the country, and one of the weapons at its disposal is the repo rate. Home buyers and those who already own a home may understandably want to know how the repo rate influences home loans, so that they are well informed when it comes to making financial decisions.
Whether you are considering buying a house or are already servicing a home loan, the movement in the repo rate has the potential to affect that EMIs, loan eligibility and affordability.
We look at how changes in the RBI repo rate impact borrowing costs for people looking for home loans and what borrowers can do to get the best deal in a rising interest rate environment Additional Read: On lower repo, impact varies on loanEMIs
What Is the RBI Repo Rate?
Repo Rate: The rate at which the central bank lends money to commercial banks for the short term, against securities like government bonds; the RBI uses this rate to influence monetary policy. It is an important tool used by governments to manage liquidity, control inflation, and (or) ensure economic growth.
When the RBI cuts the repo rate, the cost of borrowing for banks reduces and they are able to pass on the benefits to consumers in the form of lower interest on home loans. On the other hand, if the RBI hiked the repo rate, banks would subsequently increase their lending rates to make loan costlier.
How is the Repo Rate Related to Home Loans?
1. Direct Implication on Home Loan Rates of Interest
That’s because most of India’s home loans are floating-rate loans, or loans with interest rates that adjust with the market. These loans belong to an external benchmark, like the Repo Linked Lending Rate (RLLR) or the Marginal Cost of Funds-Based Lending Rate (MCLR).
Repo-Linked Loans: If your home loan is linked to the repo rate, any move by the RBI in this rate will impact your interest rate directly. If the RBI slashes the repo rate by 50 basis points (0.50%), banks might end up lowering lending rates by that much and that will reduce your EMI amount.
MCLR-Linked Loans: When it comes to these loans, the rate of interest changes gradually if banks revise MCLR at certain intervals (monthly or even quarterly). While eventually repo rate cuts flow through, the transmission isn’t instant.
2. Impact on EMI & Affordability of Loan
A reduced repo rate helps make borrowing cheaper, and the relief can be passed on to customers, home buyers in this case, in some two ways:
Lower EMIs: If you have a ₹50 lakh home loan and your interest rate is slashed from 8.5% to 8%, the EMI might reduce by ₹1,500-₹3,000 per month, depending on the tenure of the loan. Over the course of a 20-year loan, this could save borrowers a few lakhs in interest.
Increased Loan Eligibility: Lower interest rates increase a borrower’s loan eligibility without affecting the EMI. For example, when rates come down from 9% to 8%, a borrower who had been servicing ₹83,644 as EMI (on ₹1 crore at 9%) could now borrow ₹1.07 crore at the same EMI or continue the old EMI for smaller loans.
3. Impact on Existing Borrowers
Those who already have loans can gain from repo rate reduction in these two ways:
- Decreased EMIs: If they opt for lower EMIs, the pressure on their finances is less.
- Shorter Loan Term: Their loan tenure decreases if they keep the same EMI and they save a good amount of interest. For instance, a 1 per cent reduction on a ₹50 lakh loan can bring down tenure by 2-3 years thereby saving over ₹15 lakh in interest.
4. Impact on Real Property Demand
Dropping interest rates make homes more affordable, coaxing more buyers into the market. This is especially good for first-time homebuyers and the affordable housing sector where even a marginal reduction in the EMI can work wonders.
And developers have a lot to gain, too, not least of which are cheaper borrowing costs that can help speed up project completion and lower unsold inventory.
5. Fixed vs. Floating Rate Loans
Floating Rate Loans: These are linked to repo rates and are suitable when interest rates decline.
Fixed Rate Loans: These are not affected by short-term interest rate temporary changes, but this means they may not be able to take advantage of a rate cut.
Floating-rate loans, most experts agree, are ideal over the long term as they are indexed to staggering Toronto housing prices when the loan is made.
RBI Repo Rate Recent Changes and the Impacts
In June 2025, the RBI cut the repo rate by 50 basis points to 5.5%. This was the third cut for 2025, having reduced the rate in February and April, making for a full 100 bps (1%) for the year.
Key Benefits of the Latest Rate Cut:
- Mortgage interest rates will go lower, pushing some loans below 8%.
- The repo-linked loan borrowers will get the immediate effect, the borrowers of MCLR-linked loans will get the effect with a lag.
- On a ₹50 lakh home loan for 20 years, you could see your monthly outgo fall by anything between ₹3,000 and ₹3,500, depending on the lender.
The RBI’s neutral stance hints that it could be running out of room for rate cuts, making it a good time for homebuyers to lock in low rates.
What Home Loan Borrowers Can Do Now?
1. New Buyers: Should You Get a Loan Now?
Given that the repo rate is at a record low, now is a great time to apply for a home loan. But buyers should also keep in mind:
- Loan Duration: A shorter tenure (if affordable) will lead to lower overall interest payout.
- Credit Score: The higher the better, with 750 or above for the best rates.
- Hidden Cost: Consider registration fee, gst and other fees when you get the car bill done.
2. Here’s the deal: If You Already Have a Loan Should You Refinance?
- Repo-Linked Loans: You don’t have to do anything –Your lender will tweak rates automatically.
- MCLR or Older Loans: If the current loan is at a rate of 0.5% or more above the lowest available rates, borrowers should consider moving to a repo-linked loan.
- Prepayment Option: You can also opt to pay extra whenever you have excess funds available, to cut down on interest outgo.
3. Monitor Economic Trends
The prevailing trend may be for rate cuts, but future increases are a possibility should inflation lift. Borrowers should:
- Have budget to increase for redraw in case higher rates come later.
- Do not over-leverage-It is recommended not to have EMIs beyond 40% of take home salary.
Conclusion
The RBI repo rate is one of the key factors affecting the affordability of home loans. When RBI slashes rates, EMIs go down, loan eligibility increases and real estate picks up. Rate hikes, on the other hand, make borrowing more expensive.
With the ongoing 50 bps cut, this will be an ideal time for homebuyers to avail loans at attractive rates. For existing borrowers, they can lower EMI or reduce number of tenures to save maximum. But financial prudence, maintaining a good credit rating and shunning debt that is too much to handle, is still critical for longer-term security.
Borrowers need to be updated on the details of RBI policies and loan structures to make smarter decisions and to be sure that their dream homes don’t become monetary liabilities. So, whether you’re a first-time borrower, or an existing one, taking advantage of repo rate trends is one way you could potentially save lakhs and realise your homeownership goals faster.