Let’s explore how a rate cut affects home loans, what banks are doing, how much borrowers can save, and what lies ahead
The Reserve Bank of India (RBI) is expected to cut interest rates again in June 2025, bringing the repo rate down to 5.75%. This move follows two previous rate cuts in February and April this year. The decision comes at a time when inflation is falling and the Indian economy remains stable. The main question now is—will this help make home loans cheaper and reduce monthly EMIs for borrowers?
Let’s explore how a rate cut affects home loans, what banks are doing, how much borrowers can save, and what lies ahead.
What Is the Repo Rate and Why It Matters
The repo rate is the rate at which the RBI lends money to commercial banks. When this rate goes down, it becomes cheaper for banks to borrow funds. In turn, banks may lower their lending rates, including home loan rates. This is why changes in the repo rate directly affect home loan EMIs (Equated Monthly Installments).
In June 2025, most economists expect the RBI to cut the repo rate by 25 basis points (bps), bringing it to 5.75%. Some experts even believe that the central bank could go further and cut it to 5.50% in August if inflation remains under control.
Why the RBI Might Cut Rates Again
Inflation is low: Consumer Price Index (CPI) inflation dropped to 3.2% in April 2025, the lowest in nearly six years.
Stable economy: The Indian economy is growing steadily, and global economic risks are not currently severe.
Room for support: With inflation under control, the RBI has more space to support growth by reducing borrowing costs.
What This Means for Home Loan Borrowers
Most home loans today are linked to the repo rate or similar external benchmarks. When the RBI reduces the repo rate, banks usually cut their lending rates as well, though the timing and amount of the cut can vary.
Here’s how this affects borrowers:
New home loan borrowers may benefit quickly as banks adjust their rates for new loans.
Existing borrowers with floating rates may also see a reduction in interest rates and EMIs, though this could take a few months.
Fixed-rate borrowers may not benefit unless they refinance their loans.
How Much Can Borrowers Save
Even a small cut in interest rates can lead to noticeable savings on long-term loans like home loans.
For example, a 25 bps (0.25%) cut on a ₹50 lakh home loan over 20 years can reduce the EMI by around ₹1,200 per month.
A 50 bps cut could lead to savings of ₹2,400 per month for the same loan.
These savings can either reduce the monthly EMI or shorten the loan tenure, depending on the bank’s policy or the borrower’s preference.
What Are Banks Doing
Public sector banks such as SBI, PNB, Indian Bank, UCO Bank, and Bank of Maharashtra have already started passing on earlier rate cuts. Many are now offering home loans at rates between 7.75% and 7.90%.
Some private sector banks, including Kotak Mahindra and HDFC Bank, have also reduced rates slightly, bringing them under 8%. However, others like ICICI Bank and Axis Bank are slower to pass on the benefit, with rates still around 8.75%.
In recent weeks, HDFC Bank reduced its Marginal Cost of Funds-based Lending Rate (MCLR) by 15 basis points, signaling that more banks may follow.
Should Borrowers Consider Refinancing
For those paying higher interest rates (over 8%), this could be a good time to explore refinancing or balance transfers. Moving a loan to a bank offering lower rates can lead to significant savings.
Key points to consider before refinancing:
Compare the total savings on interest over the remaining loan period.
Check for processing fees or charges by the new lender.
Make sure the new interest rate is truly lower and not limited by hidden terms.
Other Sectors That Benefit
Rate cuts do not just benefit home loan borrowers. Other sectors also respond positively:
Real estate: Lower interest rates can boost demand for homes.
Automobiles: Cheaper car loans may increase vehicle sales.
Stock market: Investors often react positively to rate cuts, especially in banking, housing finance, and construction stocks.
Additionally, bond yields have fallen, which means investors expect rates to remain low for a while.
What About Fixed Deposits
While borrowers cheer lower interest rates, depositors may face lower returns. Banks may reduce interest rates on fixed deposits (FDs) in the coming months.
Currently, FD rates are between 6.1% and 7.5%, but these could be trimmed if banks continue to reduce lending rates. This could affect senior citizens and others who rely on fixed income.
Will All Borrowers Get Cheaper EMIs Immediately
Not always. Here’s why:
Some banks take time to pass on the full rate cut to customers.
Old loans may be linked to base rate or MCLR instead of repo-linked rates, causing delays.
Borrowers in fixed-rate loans won’t see any change unless they switch to floating rates or refinance.
However, many public sector banks are now quicker in adjusting rates for both new and existing customers, making it easier for borrowers to benefit.
Looking Ahead
This expected repo rate cut in June 2025 would bring the rate below 6% for the first time since 2022. The RBI appears to be focused on supporting growth while keeping inflation in check. More cuts may be seen later this year if economic conditions remain stable.
The RBI’s next policy meeting in August 2025 could bring another rate cut, possibly to 5.50%, if inflation stays low and global risks remain limited.
Are Home Loan EMIs Likely to Get Cheaper
Yes, if the RBI cuts the repo rate in June as expected, home loan EMIs are likely to become cheaper. The reduction in borrowing costs will benefit both new and existing borrowers, especially those with floating-rate loans.
While savings may vary depending on the loan amount and the bank, the trend is clear: interest rates are falling, and EMIs will come down. Borrowers should monitor their bank’s announcements and consider refinancing or prepaying loans if they can.
With more rate cuts expected later this year, the time may be right to make housing finance decisions that can lower long-term costs and improve affordability.
