In a move aimed at easing the financial burden on home loan borrowers, the Reserve Bank of India (RBI) announced a 25 basis point cut in the repo rate to 6.25% on February 7, 2025. This significant reduction comes post-Budget 2025, which also introduced a tax relief measure for salaried individuals earning up to ₹12 lakh, helping them save up to ₹80,000 annually in taxes. This combination of measures is expected to bring much-needed relief for both existing and new home loan borrowers, potentially making home ownership more affordable.
The latest rate cut will benefit both existing and prospective home loan borrowers with floating-rate loans, resulting in lower EMIs and improved loan affordability. For fixed-rate borrowers, however, the rate cut will have no immediate impact.
At present, the RBI's repo rate stands at 6.25%, down from 6.5%, following a series of rate hikes between May 2022 and February 2023. These hikes were necessary to manage inflation, but they placed considerable pressure on borrowers, leading to higher EMIs and extended loan tenures. With this latest cut, home loan borrowers are set to enjoy significant savings.
For example, if you have taken a loan of ₹80 lakh for 20 years at an interest rate of 9%, your current EMI would be ₹71,978. With the new rate cut, the interest rate would drop to 8.75%, reducing your EMI to ₹70,697. While this may seem like a minor reduction, it translates into significant long-term savings. The total interest you would pay over the loan tenure would drop from ₹92.74 lakh to ₹89.67 lakh.
For new homebuyers, this rate cut makes it possible to purchase a slightly more expensive property or avail of a loan at a more affordable rate. For instance, if a borrower takes a ₹30 lakh loan at an interest rate of 8.75% for a ₹50 lakh apartment, their EMI would drop from ₹26,992 to ₹26,511.
The RBI's rate cut is expected to stimulate demand for home loans, making housing more accessible and affordable. With lower borrowing costs, prospective homebuyers will be able to afford homes across different price categories, especially in the below ₹50 lakh range, where demand has weakened in recent times.
Industry experts predict that the rate cut, combined with the earlier announced tax incentives, could trigger a surge in demand for residential properties, especially among first-time homebuyers and those in the mid- to low-budget segments. As a result, developers may see increased sales, and new projects could be launched to meet the rising demand.
The RBI's decision to cut the repo rate is a welcome move for home loan borrowers, as it brings down monthly payments and reduces the total interest burden. For new buyers, it offers an opportunity to purchase property at more affordable rates. The expected increase in demand for housing, especially in the affordable segment, could give a much-needed boost to the real estate sector, potentially stimulating growth and new project launches.
In summary, the repo rate cut provides a unique opportunity for both home loan borrowers and the real estate market to thrive. As home loan rates become more attractive, we can expect a surge in demand for housing, contributing to the overall growth of the real estate sector.
If you're considering buying or refinancing a home, now is a great time to explore your options and benefit from the lower interest rates.
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