How falling repo rate reduce your home loan EMIs

Falling bank rates reshaping home loan EMIs (Image: AI Generated)

• RBI repo rate cuts prompt banks to reduce home, car, and personal loan rates.
• Existing borrowers may see shorter loan tenures as EMI principal components rise
• RBI holds repo rate at 5.25% in Feb 2026; banks keep rates steady.

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The RBI’s successive repo rate cuts, which enabled banks to lower lending rates, have led to a gradual shift in the composition of borrowers’ equated monthly instalments (EMIs) on their floating-rate interest loans. There’s already growing anticipation among existing borrowers of home, car, and personal loans that their overall loan repayment tenure will be shortened over time.

RBI Governor Sanjay Malhotra noted that a cumulative 125-basis-point (bps) cut in the repo rate has led to a 105-bps decline in the weighted average lending rate (WALR) of scheduled commercial banks. The central bank has kept the repo rate unchanged at 5.25 percent in its February 2026 monetary policy decision.

When the RBI last cut its lending rate by 25 bps to 5.25 per cent in December 2025, banks subsequently lowered their borrowing rates across loan products. For instance, SBI on December 15 reduced its repo-linked lending rate (RLLR) to 7.90 percent, and an external benchmark (EBLR) to 7.90 percent.

This has led many new borrowers to access retail loans at much lower costs for home, car, and personal loans offered by popular banks in India.

For existing borrowers, any changes in the bank’s lending rates will immediately affect their EMI components (principal and interest), which are crucial in determining the impact on borrowers' overall loan tenure.

Banks usually provide borrowers with an amortisation schedule to help them understand changes in their EMIs, both principal and interest components. They also inform borrowers promptly via SMS of any changes to interest rates before the EMI due date.

A case study: How falling rates are reshaping home loan EMIs

Here’s an example of how the RBI repo rate cut led the bank to reduce its lending rate, and the impact it had on the principal and interest components of a home loan borrower.

Hemant Kumar (name changed) lives in a 2-BHK apartment in a Tier IV town that he bought in April 2024 for Rs 25 lakh. He funded the ready-to-move-in apartment with his savings of Rs 8 lakh as a down payment and took a Rs 17 lakh home loan from SBI. The overall home loan tenure is 30 years, and the EMI is fixed at Rs 13,200 with a floating interest rate.

The bank’s EBLR was at 9.15 per cent at the time of the first EMI cut in April 2024, while the RBI’s repo rate stood at 6.50 percent– and remained unchanged throughout the year. In 2025, the overall repo rate was cut by 125 basis points (bps): from 6.25 per cent in February to 6 per cent in April, 5.50 per cent in June, and further to 5.25 per cent in December.

Similarly, Kumar’s bank reduced its EBLR rate by 125 bps, or 1.25 per cent, since the first EMI. So far, he’s just completed 22 EMIs (up to February 2026), and the prevailing interest on the home loan is 7.35 per cent, down from 7.60 per cent in December 2025.

As the bank has reduced its lending rate, following the RBI’s rate cuts, Kumar has a high chance of seeing his home loan tenure reduced in the long run. It is because the principal component of EMI amount has increased month-on-month, thereby affecting the overall loan tenure.

In other words, even without a visible reduction in the monthly EMI, borrowers are quietly gaining a larger share of each instalment now goes towards repaying the principal rather than interest. Over time, this accelerates loan repayment and shortens tenure, improving household cash flows and reducing total interest outgo.

So while rate cuts may not always feel dramatic in the short term, their real benefit compounds in the background, turning every EMI into a slightly faster step toward debt-free ownership.