The Union Budget 2025 brought a major relief to the middle class with significant tax cuts. Now, another piece of good news has arrived for the same group— the RBI has slashed interest rates by 25 basis points (bps). This move will also benefit new borrowers, making home loans, auto loans, and personal loans more affordable soon.
What Is A Repo Rate?
The Repo Rate (Repurchase Rate) is the interest rate at which the Reserve Bank of India (RBI) lends money to commercial banks in exchange for government securities. After the latest cut the repo rate stands at 6.25 per cent, down from 6.50 per cent earlier. Since Covid (May 2020), this is the first time that RBI is slashing the Repo rate. Repo rate was left unchanged at 4 percent by the Reserve Bank between May 2020 and April 2022.
Afterwards, It started hiking the policy rates since April 2022 and gradually raised to 6.5 per cent till February 2023 before keeping it unchanged for two years until now.
With the RBI cutting key policy rates, banks are expected to lower their lending rates as well, making loans more affordable for borrowers.
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What Happens Next?
A reduction of interest rate by 0.25% means that now the home loan borrowers will have two option- either to go for a reduction in EMIs or reduce the tenure of the loan. The latter will help them in clearing their home loan outstanding faster. On a home loan of Rs 30 lakh taken for 20 years, if the interest rate falls from 9% to 8.75% the EMI will fall from Rs 26,992 to Rs 26551, which is a fall by Rs 480 or 1.78%.
If you have a ₹60 lakh home loan for 20 years at an 8.75% interest rate and have already paid 12 EMIs, a 25 basis point rate cut will result in:
Old EMI: ₹53,023
New EMI: ₹52,069
Total interest savings: ₹2.17 lakh over the loan tenure
Loan tenure reduction: Around 4 EMIs
