RBI Cuts Repo Rate to 6%: Time for Homebuyers to Lock in Lower Loans?

The Reserve Bank of India (RBI) has reduced the repo rate by 25 basis points, bringing it down to 6%, a move widely anticipated by market analysts. This rate cut is set to usher in a more borrower-friendly lending environment, especially benefiting those with home loans or looking to take one soon.

With this revision, home loan interest rates are expected to dip below the 8% mark, giving a much-needed breather to homebuyers and existing borrowers alike. But the benefits won’t be uniform across all segments, and both new and current borrowers must assess their financial position and loan structure to make the most of this opportunity.

Understanding the Repo Rate Cut and Its Impact

The repo rate, which is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks, plays a direct role in shaping lending interest rates across the economy. By cutting it to 6%, the central bank has signaled a softer interest rate outlook, potentially setting the stage for cheaper credit in the housing finance sector.

Home Loan Rates to Decline – But Who Benefits Most?

At present, top home loan interest rates range from 8.10% to 8.35%. Following the recent repo rate reduction, banks are expected to lower these rates even further. However, the most competitive rates are usually reserved for prime borrowers—individuals with credit scores above 750 or those opting to refinance their existing loans.

For New Borrowers

If you have a strong credit profile and are in the market for a new home loan, this is an opportune moment to apply. Lenders are expected to offer more competitive rates in the coming weeks.

For Existing Borrowers

The situation is more nuanced for current home loan customers. Those who already have repo-linked loans—typically offered by banks—stand to benefit the most, as any repo rate changes are quickly and fully transmitted to these loan products.

Adhil Shetty, CEO of BankBazaar.com, says:
“The rate cut is on expected lines. Home loan rates are about to go sub-eight again with today’s 25 bps rate cut. The lowest rates we’re currently seeing are between 8.10 and 8.35. However, the lowest rates are typically reserved for prime borrowers (credit score > 750) and refinance cases. Homeowners paying a substantially higher rate (50 bps or higher above prevalent rates) are advised to refinance their loans to avail lower rates. Do note that automatic, immediate and full rate cuts are available only on repo-linked home loans offered by banks.”

Why Not All Home Loans Reflect the Repo Rate Cut

Despite the 2019 RBI mandate to link new floating-rate loans to the repo rate, a large portion of home loans—especially those from government banks—are still tied to older benchmarks like MCLR (Marginal Cost of Funds-Based Lending Rate) and Base Rate.

Shetty adds:
“Despite six years of repo-linking, we see that only 50% of floating rate loans with government banks are still linked to the MCLR and 2% to Base Rate. Borrowers with these banks are advised to take stock of their older loan benchmark and consider a refinance to a repo-linked home loan if it helps them save interest outflows.”

Why This Matters

MCLR and Base Rate-linked loans respond slowly and less transparently to repo rate cuts. This delay may mean missed opportunities for borrowers to save unless they actively switch to repo-linked products.

Should You Refinance Your Home Loan?

If your home loan interest rate is 50 basis points or more above the current market rate, refinancing could lead to substantial long-term savings. Here's what you should do:

• Check your current benchmark (repo-linked, MCLR, or Base Rate)

• Compare offers from other banks and lenders

• Calculate switching costs (processing fee, legal charges, etc.)

• Evaluate savings over the remaining loan term

If the numbers make sense, switching to a repo-linked loan could reduce your EMIs and total interest burden significantly.

Advice for New Homebuyers: Is Now the Right Time to Buy?

With interest rates expected to fall below 8%, it’s a great time for new homebuyers to consider entering the market. Lower EMIs make homeownership more affordable, especially for those with high credit scores and strong income stability.

Key Tips for New Borrowers

• Check your credit report before applying

• Compare multiple lenders and offers

• Avoid over-leveraging: keep EMIs under 40% of your monthly income

• Maintain an emergency fund even when loans are affordable

A Word of Caution: Don’t Let Low Rates Lure You Into Overspending

While falling interest rates are great news, borrowers should avoid stretching beyond their financial capacity. Use this opportunity to reduce interest burden or repay loans faster, but avoid taking on excessive debt just because it's cheaper.

Conclusion: Act Smart, Not Fast

The RBI's rate cut is a golden window for savvy homebuyers and borrowers to refinance, restructure, or lock in better rates. However, thoughtful financial planning, credit discipline, and careful evaluation are key to making the most of this policy shift.