In a major move aimed at easing borrowing costs, the Reserve Bank of India (RBI) has reduced the repo rate by 50 basis points, bringing it down to 5.50%. This marks the third rate cut this year and is expected to significantly benefit home loan borrowers. Alongside this, the RBI has also cut the Cash Reserve Ratio (CRR) by 100 basis points, injecting more liquidity into the banking system.
🔍 What This Means for Home Loan Borrowers
1. Lower EMIs on Repo-Linked Loans
If your home loan is tied to the repo rate, you’re in for some relief. Most banks pass on such rate cuts to customers, which leads to a direct reduction in loan interest rates. A 50 bps cut can reduce your monthly EMIs by ₹1,500 to ₹4,000, depending on the loan size and tenure.
For instance, on a â‚ą50 lakh loan over 20 years, a rate cut like this can save you:
- Around â‚ą1,500 to â‚ą1,569/month as per current estimates
- Up to â‚ą3,000 or more/month, if you consider cumulative rate reductions this year
2. Improved Loan Eligibility
With lower interest rates, your loan eligibility improves. You can now borrow a higher amount while keeping EMIs within your budget. Several lenders are offering interest rates starting from 7.85% to 8%, especially for borrowers with good credit scores.
3. Option to Prepay or Shorten Tenure
Borrowers can choose to:
- Keep the EMI the same and reduce the loan tenure (saving on total interest), or
- Enjoy a lower EMI and use the savings elsewhere.
⏱️ Timeline: When Will You See the Impact?
If your loan is repo-linked, you won’t see the new rate immediately. Most banks revise interest rates every 3 months or on your scheduled reset date. So, the reduced EMI will be visible in your next reset cycle.
đź’ˇ Should You Refinance?
This is a great time to evaluate:
- If your current loan is not linked to the repo rate, consider switching to one that is.
- Compare rates across banks. If another lender is offering a significantly lower rate, a balance transfer could help you save substantially—just ensure the processing fees and other costs are justified.
🔄 Broader Impact of the Rate Cut
While borrowers benefit from cheaper loans, fixed deposit rates may fall, affecting savers. This is part of a broader economic strategy to boost spending and investment. Notably, the RBI has shifted its policy stance from “accommodative” to “neutral”, signaling that future rate cuts may not be guaranteed.
âś… Summary
| Factor | Update |
|---|---|
| Repo Rate | Cut by 50 bps → now 5.50% |
| CRR | Cut by 100 bps → now 3% |
| Loan Type Affected | Primarily repo-linked loans |
| EMI Reduction | ₹1,500–₹4,000/month (approx) |
| Effective Timeline | Within 30–90 days of reset |
| Loan Rates Now Start At | Around 7.85%–8.0% |
đź“Ś Final Advice
If you have an existing home loan:
- Check whether your loan is repo-linked
- Track your reset date
- Plan to utilize your savings—either by investing, prepaying, or reducing loan tenure
If you’re planning to take a new loan:
- Compare offers from different banks
- Go for a repo-linked product to enjoy faster rate transmission
