RBI Cuts Repo Rate by 0.25%: Home Loan EMIs to Drop, Boosting Housing Sector

Homebuyers have been facing high EMIs and interest rates on home loans for over two years, eagerly awaiting change.

In a significant move, the Reserve Bank of India (RBI) has cut the repo rate by 0.25% during its recent meeting on February 7, 2025. This is the first rate cut in nearly five years, during which home loan rates have mostly stayed stable or risen. With this rate cut, it’s expected that lenders will reduce interest rates on floating-rate home loans.

A 0.25% drop in interest rates gives home loan borrowers two options: they can either lower their monthly EMIs or shorten the loan duration to pay off the loan faster. For instance, on a Rs 30 lakh loan with a 20-year term, if the interest rate decreases from 9% to 8.45%, the EMI would decrease from Rs 26,992 to Rs 26,551, saving Rs 480 per month, which is a reduction of 1.78%.

During the COVID-19 pandemic, low-interest rates helped increase homeownership, making credit more affordable through banks and financial institutions.

In 2022, the RBI raised the repo rate, leading to higher home loan interest rates and increased EMIs for borrowers with floating-rate mortgages.

Currently, most banks offer home loans with interest rates around 9% per year.

The rate cut by RBI is expected to benefit borrowers with variable interest rate loans by making lending cheaper. This will make home and personal loans more affordable, easing financial pressure on households.

Officials believe this rate cut will boost the real estate sector by increasing housing demand and market activity. It’s expected to boost confidence among buyers and developers, leading to more investment in real estate. Developers will benefit from easier access to financing, helping them complete projects faster to meet rising demand. This move aligns with the government’s goal of economic growth and ensuring housing market stability.

Before the announcement, analysts were unsure whether RBI would cut rates to control inflation and maintain currency stability. With inflation under control and stable economic growth, the central bank chose to lower rates.