RBI Policy Update & Home Loan Impact – April 9, 2025
Here's good news for both existing and prospective home loan borrowers. As of 9 April 2025, the Reserve Bank of India (RBI) has reduced the repo rate by 25 bps (basis points), which brings it down from 6.25% to 6.00%. This becomes the second repo rate cut of 2025, with the first reduction made in February. The reverse repo rate, however, remains unchanged at 3.35%.
The RBI lends money to Commercial Banking institutions at a Repo Rate to help them maintain their liquidity. Following the repo rate cut, the RBI has also decided to shift the stance from neutral to accommodative, which may hint at more repo rate reductions in the upcoming months.
This further provides support to banks in emergencies like fund shortages or to meet regulatory requirements. Due to rising uncertainties in the global economy, the updated US tariffs have affected international trade flows. Therefore, the MPC (Monetary Policy Committee) members have jointly arrived at the decision to reduce the repo rate to 6%.
How Does the Repo Rate Cut Impact Home Loans?
It is good news for prospective home buyers whose loan policies are tied to repo rates. Individuals willing to move their existing RBI repo rate for home loans must understand specific aspects of these loans. If you adjust the repo rate of your existing home loan, it will most likely be reflected in your EMI outlay.
With the new repo rate of 6%, the EMIs and interest rates on home, personal, and vehicle loans will come down, making it easier and more flexible for borrowers to repay their debts. The RBI policy update 2025 is designed to make home loans cheaper. However, the extent of the benefit and the speed of enjoying the discounted rates depend mainly on the type of home loan and the benchmark rate it is linked to.
Let’s look at the RBI policy impact on home buyers and understand how it affects different home loan borrowers.
Immediate Impact
When the RBI lowers the repo rate, floating-rate home loan borrowers are likely to witness a reduction in their interest rates. Such a home loan is then linked to the repo rate directly. The interest rates for this type of home loan are generally adjusted every three months, as per the RBI guidelines. So, when the repo rates are cut, the interest rates and the EMIs are lowered.
However, before adjusting your repo rates, knowing about the right time matters. The exact timing of the rate modification, that is, the specific reset dates set by the bank, varies and makes an impact. While some lending banks may let you enjoy the benefits sooner, others may delay the rate adjustment process. However, home loan borrowers may expect the rate reduction and the related benefits to be applied within a quarter.
Delayed Impact
Depending on several factors, your home loan EMI might increase if the lending partner or banking authority makes modifications to its benchmark lending rate. So, the impact or extent of benefits of this repo rate cut may get delayed or become less prominent when the borrowers’ loans are linked to older benchmarks, such as the base rate or the MCLR (Marginal Cost of Funds-based Lending Rate).
Base rates are calculated as per the lending bank’s cost of funds, rather than the repo rate itself. Therefore, the repo rate reduction may not be passed on to the borrowers immediately or completely when these benchmarks are applicable. Furthermore, base rate and MCLR-linked home loans generally have longer reset periods, ranging from three months to one year.
Therefore, individuals borrowing these kinds of loans may not enjoy a decreased home loan interest rate after RBI policy, until they reach the next reset period. However, they can always switch to a repo-linked home loan to reduce their EMIs.
No Impact
Borrowers with home loans having fixed interest rates will be unaffected by these repo rate modifications. Fixed-rate home loans will maintain the same interest rate and remain untouched, irrespective of repo rate fluctuations, either for the entire tenure or a specific period. Let’s throw more light on the latter.
If you consider refinancing your home loan in 2025, you may reap the benefits if you switch to a repo rate or floating rate-linked loan. But before making the final refinancing decision, consider factors like the foreclosure charges, processing fees, transfer fees, etc., that you might be required to pay. So, before transferring your home loans, compare these additional or overhead expenses and weigh them against the total savings you are expecting in your interest rates.
Summing Up
Here’s a table to sum up the above-mentioned impacts, indicating how the RBI repo rate cut and home loan EMI (through reduced interest rates) are interlinked:
| Home Loan Type | Impact of Repo Rate Reduction | Transmission Speed |
|---|---|---|
| Repo rate-linked home loans | Immediate impact, like reduced interest rates and EMIs | Within 1–3 months |
| Base rate/MCLR-linked home loans | Delayed and partial transmission | It may take up to several months, and the benefits are usually not entirely passed on. |
| Fixed-rate home loans | No impact (at least not until a certain period) | No transmissions (unless refinanced) |
Summing up, the benefits of a repo rate cut for home loan borrowers include:
- Reduced EMIs for new borrowers
- Improved loan eligibility due to higher affordability
- Opens up a lucrative investment opportunity for potential home buyers
- Lower interest outgo or shorter repayment tenures for current floating-rate home loan borrowers (related to repo rate)
- Allows borrowers to choose how they want to finance their home purchases or decide whether they want to refinance their existing loans
Why Choose Levonor as Your Ultimate Residential Destination?
Finding your dream home need not come at an outrageous price. Levonor can be your one-stop destination as it is brimming with multiple ongoing and upcoming projects. We provide exotic residential spaces for individuals who do not wish to settle for less. Our team of experts aims to create ideal, smart, and optimized living spaces that are particularly suitable for families. Our clients love us for our exceptional attention to detail and precision, as we focus on perfecting every project until it meets our standards. That's because we don’t want you to compromise on quality.
Conclusion
The RBI has taken this repo-cut initiative to encourage investment and lending, boost demand, and improve the overall economic stature of the nation. Besides supporting economic growth, this monetary policy decision is aimed at lessening the financial burden on borrowers. Learn about the home loan tax benefits and RBI policy before investing, and understand how you can save up on your home loan interest rates.