Repo Rate Changes Affect Your Home Loan EMI

Jun 19, 2025

For anyone planning to take a home loan or already paying one, the term "repo rate" often comes up. But what does it really mean for you, especially when it changes? If the Reserve Bank of India (RBI) reduces the repo rate, will you pay less on your EMI? Let's break this down as simply as we can.

What Is the Repo Rate?

The repo rate is the interest rate at which the RBI gives money to commercial banks. The repo rate is essentially the price banks pay to borrow money from the central bank. If the repo rate goes up or down, that will affect the interest rate you pay on your loans, including your home loan.

What Is the Current Scenario of Repo Rate?

The repo rate has recently been lowered. This is usually seen as a way to lower borrowing costs and encourage spending and investment to help stimulate economic growth. This is typically good news for prospective homebuyers or borrowers.

Impact of Repo Rate on Home Loan

A cut in the repo rate lowers the cost of borrowing for banks. When banks pay less interest to the RBI, they often pass on this benefit to customers by reducing the interest rates on loans. So, if you have a home loan with a floating interest rate, a lower repo rate may result in lower EMIs.

However, the actual impact depends on how quickly and how much your bank decides to pass on the benefit. Some do it faster than others, and some might reduce the rate only partially.

Example of Impact in Home Loan EMI and Interest Rate with Repo Rate Change

Let's say you've taken a home loan of ₹40 lakhs for 20 years at an interest rate of 9%. Your monthly EMI would be around ₹35,990.

Now, imagine the repo rate is cut, and your bank decides to reduce your home loan interest rate by 0.50%, bringing it down to 8.5%. Your new EMI would be approximately ₹34,678.

That's a saving of ₹1,312 every month — and, more importantly, a huge saving on the total interest you pay over the years.

Reduced EMIs and Interest Amount

When the repo rate falls, banks reduce their home loan rates accordingly:

Your EMI may reduce, which means more breathing room in your monthly budget.
Alternatively, your EMI might remain the same, but your loan tenure could be reduced, helping you close your loan sooner.
Overall, you'll likely pay less interest over the lifetime of the loan.

This is why repo rate cuts are often welcomed by existing and prospective homebuyers.

Increased EMIs and Interest Amount

While this article focuses on a cut in the repo rate, it's worth noting the reverse scenario as well. If the RBI hikes the repo rate:

Banks may raise their lending rates.
Your EMIs may increase, or your loan tenure may get longer.
You'll end up paying more interest over time unless you prepay part of your loan.

Effect of Repo Rate on Home Loan Approvals

Repo rate changes can also affect home loan approvals indirectly. When interest rates drop:

Borrowing has become cheaper, so more people may apply for loans.
Banks may see more eligible applicants as EMIs become more affordable.
However, if demand rises too sharply, banks might become cautious in their approval process.

In short, lower rates can help you qualify for a bigger loan if your income and credit score support it.

What Should You Do?

If you already have a home loan:

Check if your loan is linked to a floating or fixed rate.
If it's floating, ask your bank how much of the repo rate cut will be passed on to you.
Consider refinancing your loan if another lender is offering a significantly lower rate.

If you're planning to take a home loan soon:

This might be a good time, as lower repo rates mean better interest rates.
Still, compare offers, check processing fees, and read the fine print before applying.

Conclusion

A repo rate cut can be great news for home loan borrowers. Lower EMIs, reduced interest burden, and better loan eligibility are just some of the benefits. But it's important to stay informed, ask the right questions to your lender, and act wisely based on your financial goals.

If you're keen on staying ahead of market movements and understanding how changes in rates affect your financial decisions, Indiabulls Securities Limited can offer insights and tools to help you make smarter borrowing and investing choices.

FAQs

Will my EMI reduce immediately after a repo rate cut?

Not always. While repo rate cuts often lead to lower EMIs, it depends on your lender's policy and how soon they implement the changes. If your loan is on a floating rate, changes are more likely.

Should I switch my home loan to another bank if my EMI hasn't dropped?

It could be a smart move if another lender offers a significantly lower rate. But remember to factor in processing fees, foreclosure charges (if any), and other costs before switching.

Is it better to choose a fixed or floating home loan during repo rate cuts?

Floating rates tend to benefit more during a repo rate cut. But if you expect rates to rise soon, a fixed rate might be safer. It depends on your risk comfort and loan tenure.

How often does the RBI change the repo rate?

The RBI reviews the repo rate roughly every two months in its monetary policy meetings. But changes happen only if the economic situation demands it.

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