In June 2025, the Reserve Bank of India (RBI) reduced the repo rate by 50 basis points to 5.50%, aiming to boost economic activity and make loans more affordable. For home loan borrowers, this change has created fresh opportunities, but the benefits aren’t always felt immediately.
Why is this important now? Well, borrowers linked to Repo Linked Lending Rate (RLLR) will start seeing lower EMIs from August 2025, while older loans linked to MCLR (Marginal Cost of funds based Lending Rate) will take several months before the changes kick in. The delayed impact and slower transmission mean this information is still highly relevant for many borrowers, making it an important update for your home loan strategy.
Let’s dive into what this rate cut really means for different borrowers and how it will affect your home loan journey in the coming months.
Understanding the Repo Rate
The repo rate is the interest rate at which the Reserve Bank of India lends money to commercial banks. When the RBI cuts this rate, banks can borrow money at a lower cost, which means they are more likely to pass on these savings to customers by lowering their own lending rates.
For home loan borrowers, this is important because when the RBI lowers the repo rate, it leads to cheaper loans, which ultimately makes borrowing more affordable for you. However, the extent and speed of the reduction in your EMI depend on your loan type.
| MCLR:
It is the minimum interest rate that a bank can lend to borrowers, based on the marginal cost of funds, which includes the bank’s cost of acquiring funds, operating costs and a spread for profit. EBLR RLLR This is the lending rate set by banks that is directly linked to the repo rate (the rate at which the RBI lends to commercial banks). When the RBI changes the repo rate, the RLLR also changes, leading to an adjustment in the interest rates on loans tied to it. |
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Impact on Floating-Rate Home Loans
With the RBI’s recent repo rate cut, borrowers with floating-rate home loans are likely to see changes in their EMIs. The effect varies depending on the type of loan, so let’s explore how this will impact those with RLLR-linked and MCLR-linked loans.
RLLR-linked Loans
- If your home loan is linked to the Repo Linked Lending Rate (RLLR) or External Benchmark Lending Rate (EBLR), you’ll likely see reduced EMIs within 1-2 months as banks adjust their rates in line with the RBI’s recent repo rate cut.
- Example: If you have a ₹40 lakh, 20-year loan, a rate cut from 8.5% to 8% could reduce your monthly EMI by about ₹1,250.
- Major banks like PNB, BoB and UCO Bank have already announced immediate rate cuts for repo-linked loans.
MCLR-Linked Loans
- Older home loans are often linked to the Marginal Cost of Funds Based Lending Rate (MCLR), which reflects a bank’s internal funding costs.
- MCLR rates are reset less frequently, usually every 6-12 months. So, the effect of the rate cut may not be seen until later, sometimes up to a year.
- If you have an MCLR-linked loan, you’ll need to track the reset dates to see when your EMI will adjust.
Impact on Fixed-Rate Loans
If your home loan has a fixed interest rate, the RBI’s repo rate cut won’t directly affect your EMI. Since fixed-rate loans stay the same for the entire term, any changes in the RBI’s repo rate won’t be passed on to you.
However, this rate cut could present an opportunity to consider refinancing. If you’re stuck with a fixed rate, you might want to switch to a floating rate loan (which is linked to the repo rate) to take advantage of future rate cuts, potentially saving you money on your EMI.
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New Borrowers: Better Deals, More Choices
For those looking to take out a new home loan, the RBI’s rate cut is a great opportunity. With lower repo rates, new home loans are likely to come with reduced interest rates, making homeownership more affordable.
Different banks and housing finance companies may adjust their rates at different times, so it’s important for new borrowers to compare offers before committing. Shopping around for the best deal can help you lock in a lower interest rate and lower EMIs, giving you more value for your home loan.
Refinancing Options for Existing Borrowers
For existing borrowers, especially those with MCLR or fixed-rate loans, the RBI’s rate cut provides an opportunity to refinance to a repo-linked loan for faster benefits.
- Refinancing to a repo-linked loan could help you take advantage of lower rates and reduce your EMI more quickly.
- The RBI has waived foreclosure charges for floating-rate loans, making it easier and more affordable to switch lenders or change your loan terms without extra penalties.
If your current loan is linked to MCLR or a fixed rate, refinancing could help you save money in the long run, especially as rates are likely to remain low.
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What Should Borrowers Do Now?
Now that the RBI’s repo rate cut has taken place, here’s what home loan borrowers should consider:
- Check your loan type: If your loan is linked to RLLR/EBLR, expect quicker EMI reductions. For MCLR-linked loans, track when your bank will adjust rates.
- Compare refinancing options: If you’re stuck with a higher rate (fixed or MCLR), consider switching to a repo-linked loan for faster benefits. This could save you money on interest in the long run.
- Talk to your bank: Get the latest updates from your lender on when you can expect changes to your EMI and whether refinancing makes sense for you.
- Don’t rush: While low rates are great, take time to review your budget and consider long-term affordability before making decisions.
Conclusion
The RBI’s repo rate cut is great news for home loan borrowers, especially those with repo-linked loans, who will see quicker EMI reductions. MCLR-linked and fixed-rate borrowers might need to wait, but refinancing offers a way to take advantage of lower rates sooner. As banks adjust their rates, now is the perfect time to review your loan, compare options and make the best decision for your financial future.
Whether you’re an existing borrower or a new one, this rate cut presents an opportunity to reduce your home loan costs, just make sure to act at the right time to maximize the benefits.
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