Repo Rate Cut Benefits for Home Loan Borrowers
The recent announcement from the Reserve Bank of India (RBI) has brought good news for home loan borrowers. RBI Governor Sanjay Malhotra revealed a unanimous decision by the Monetary Policy Committee (MPC) to cut the key repo rate by 25 basis points. This reduction in the repo rate, which is the rate at which banks borrow from the RBI, is expected to lower Equated Monthly Installments (EMIs) for home loans. Additionally, the recent budget announcement by Finance Minister Nirmala Sitharaman, which includes a NIL income tax for individuals earning up to Rs 12 lakh, adds to the financial relief for the middle class. This article explores how these changes will impact home loan borrowers and the overall financial landscape for the middle class.
Repo Rate Cut: Impact on EMIs
The recent repo rate cut is set to significantly reduce EMIs for home loan borrowers. According to calculations from BASIC Home Loan, an individual with a home loan of Rs 50 lakh at an interest rate of 8.75% for a 30-year tenure will see a monthly EMI reduction of approximately Rs 889. The EMI will decrease from Rs 39,335 to Rs 38,446. For a loan amount of Rs 1 crore under the same conditions, the EMI will drop from Rs 78,670 to Rs 76,891.
This reduction in EMIs is not just a small relief; it can lead to substantial savings over the loan tenure. For instance, a borrower with a Rs 50 lakh loan will save around Rs 1.06 lakh over 30 years due to the lower interest rate. Similarly, for a Rs 1 crore loan, the total savings could amount to over Rs 2.12 lakh. This financial relief comes at a crucial time when many households are grappling with rising costs and inflation.
The impact of the repo rate cut will vary based on the lender and the borrower’s credit profile. However, it is clear that this decision will make home loans more affordable for many. Borrowers should keep an eye on their lenders to see when these changes will take effect.
Middle-Class Bonanza: Income Tax Relief and EMI Cuts
The combination of the repo rate cut and the new income tax regime presents a unique opportunity for the middle class. The recent budget announcement allows individuals earning up to Rs 12 lakh to enjoy NIL income tax. This change, coupled with lower EMIs, means that many middle-class families can expect to see a significant increase in their disposable income.
For example, a salaried individual with a gross income of Rs 25 lakh and a home loan of Rs 50 lakh can save approximately Rs 1.37 lakh in the financial year 2025-26. This savings comes from both the reduced interest on the home loan and the tax benefits from the new income tax slabs. The analysis from BankBazaar indicates that the total savings can translate to monthly savings of around Rs 11,461 for individuals earning Rs 25 lakh and up to Rs 13,389 for those earning Rs 50 lakh.
These changes provide a much-needed financial cushion for the middle class, allowing them to allocate funds towards savings, investments, or other essential expenses. The combined effect of lower EMIs and tax relief can significantly enhance the financial well-being of many households.
When Will EMIs Start to Decrease?
While the repo rate cut is a positive development, borrowers may wonder when they will see the benefits reflected in their EMIs. Experts suggest that the transmission of the repo rate cut will take about 3 to 4 months. This delay is due to the need for banks to adjust their lending rates and policies.
Vivek Iyer, Partner and Financial Services Risk Leader at Grant Thornton Bharat, explains that banks will likely transmit the rate cut selectively, focusing on borrowers with good credit standing. This means that the overall impact may vary from one bank to another. Atul Monga, Co-Founder and CEO of BASIC Home Loan, also notes that while the MPC’s decision aims to make borrowing more affordable, the actual benefits may take time to reach borrowers.
Borrowers should stay informed about their lenders’ policies and be proactive in seeking information about when their EMIs will be adjusted. The timeline for these changes can vary based on the lender’s internal processes and the borrower’s profile.
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