Home loan interest rate: EMI relief for home loan borrowers as RBI slashes repo rate by 25 bps

Home Loan

The Reserve Bank of India's February 7 decision to bring the repo rate down by 25 basis points to 6.25 percent, the first such cut in almost five years, will help lower interest rates on home loans, bringing down the equated monthly instalments (EMIs), homebuyers and experts said.

"This was something long overdue for homebuyers. They have been under pressure from high EMIs and interest rates on home loans for more than two years," said Prakash Darekar, chairman of the Mumbai District Cooperative Housing Federation.

A low-interest rate regime from the COVID-19 era spurred a new wave in home-ownership, enabling banks and financial institutions to provide cheap credit, with interest rates on home loans often being under 7 percent for much of 2021 and a part of 2022.

The RBI, however, started raising the repo rate, the rate at which it lends money to central bank, from June 2022, and home loan interest rates began to rise, as financial institutions ran out of wiggle room.

Industry estimates say that EMIs increased by more than 20 percent for those on floating rate mortgages.

Currently, most banks and loan providers are advertising home loans at rates hovering at around 9 percent per annum, experts said.

"The borrowers, especially those with floating interest rate loans, will have lower lending rates as a result of a reduced repo rate. This means loans become cheaper and, consequently, EMIs for home and personal loans decrease, which reduces the financial burden on the household,” Rajesh Katoch, CEO of EZ Capital, said.

“For most of these benefits to find their way down to the borrowers, individual banks have a say, and the nature of the interest rate attached to the loan — on which fixed-rate loans are immune to a repo rate cut," he said.

"It is definitely a relief for us homebuyers. This is the second time I am buying a property, and a lower interest rate as a result of today's action will be of help. In my previous loan, I, too, felt the pinch when the RBI started increasing the repo rate in 2022, and my EMI went up by around Rs 50,000," a homebuyer in the National Capital Region said on condition of anonymity.