Home Loan Interest Rate: The Reserve Bank of India has announced great news after five years. RBI has reduced the key interest rate, the repo rate, for the first time in five years. In the RBI MPC meeting, it was decided to cut the repo rate by 0.25% to 6.25%.
With this, other banks may also reduce interest rates on loans, making borrowing cheaper for people and supporting GDP growth. Customers with floating-rate loans can expect a reduction in their EMI soon. However, those who have taken loans at fixed rates will see no change in their EMI.
When Will Banks Reduce Interest Rates?
Atul Monga, founder and CEO of Basic Home Loan, said, “It may take some time for banks and housing finance companies to pass on these benefits to consumers. This will depend on their policies and rate cycles. This decision will boost the real estate sector, encouraging people to buy homes and invest in property. It is also expected to contribute to GDP growth in the financial year 2025-26. However, GDP growth will also depend on economic conditions, inflation, and domestic demand.”
How Much Will EMI Decrease?
Here’s an example of how your EMI may reduce after the rate cut:
| Lender | Loan Amount | Loan Tenure | Current Interest Rate | Current EMI | New Interest Rate | New EMI |
|---|---|---|---|---|---|---|
| Bank-1 | Rs 50 lakh | 30 years | 8.75% | Rs 39,335 | 8.50% | Rs 38,446 |
| Bank-2 | Rs 50 lakh | 30 years | 9.55% | Rs 42,225 | 9.30% | Rs 41,315 |
For example, if you have taken a home loan of Rs 50 lakh at a floating rate of 8.75% for 30 years, your EMI is Rs 39,335. After the rate cut, if the interest rate drops to 8.50%, your EMI will reduce to Rs 38,446. Similarly, if your loan is at 9.55% and the new rate becomes 9.30%, your EMI will decrease from Rs 42,225 to Rs 41,315.
Savings on Auto Loan EMIs
The recent repo rate cut may benefit car and two-wheeler loan borrowers, as auto loan interest rates could drop by 0.25%, provided banks pass on the full benefit.
Here’s how much you can save on EMIs for different loan amounts over a five-year tenure:
| Loan Amount | EMI @ 9.4% | EMI @ 9.15% | Annual Savings |
|---|---|---|---|
| Rs 5 lakh | Rs 10,477 | Rs 10,416 | Rs 732 |
| Rs 7 lakh | Rs 14,667 | Rs 14,582 | Rs 1,020 |
| Rs 10 lakh | Rs 20,953 | Rs 20,831 | Rs 1,464 |
RBI’s move aims to boost the slowing economy and ease financial burdens. However, banks may also lower FD interest rates as their need to attract deposits reduces.