RBI cuts repo rate—Will your home loan EMIs go down?
What's the story
The Reserve Bank of India (RBI) has announced a 25 basis points cut in the repo rate, making home loans, auto loans, and personal loans cheaper for both existing and new borrowers.
The repo rate now stands at 6%, down from 6.25%. The latest cut is the second interest rate cut by the RBI since the COVID-19 pandemic began. The first reduction happened in February this year.
EMI reduction
Impact on loan EMIs
The repo rate is the interest rate at which RBI lends to banks. When the central bank cuts this rate, it results in lower EMIs for borrowers.
For example, a ₹50 lakh home loan over 30 years at 8.7% interest rate would see its EMI fall from ₹39,157 to ₹38,269 with just 25 basis points cut in repo rate.
This reduces monthly payments by ₹888, adding up to a savings of over ₹3.2 lakh over the 30-year loan period.
Fixed rates
Fixed-rate borrowers unaffected by RBI's decision
Borrowers with floating interest rate loans stand to gain from the rate cut, as their EMIs are likely to reduce over time. However, those on fixed-rate loans will see no immediate impact.
Loan interest rates are typically made up of two parts—the Marginal Cost of Funds based Lending Rate (MCLR) and a bank-specific spread.
While MCLR may drop in line with RBI's rate cut, the spread is set by banks and affects how much of the benefit gets passed on.