RBI's 25 BPS repo rate cut will not reduce EMI on home loan

After the announcement, the repo rate is 6.25% and the reserved repo rate is 5.15%. This rate cut is the first time in these months. The last rate cut was in October 2019.

This is good news for borrowers. The RBI's decision to reduce the repo rate from 25 bps 6.00% to 5.75% and change the mindset to "neutral" will boost the economy, provide affordable loans to small businesses, home buyers etc. and at the same time, This will promote employment opportunities.

Usually, when the RBI cuts the repo rate, banks usually provide benefits to the customers. If banks decide to cut the rate, home, auto and other loans are likely to be cheaper.

Impact of the Repo Rate cut on Home Loan EMI

Now that the RBI has reduced the repo rates, the EMI of your home loan is likely to be affected, assuming that the banks will pass it this way:

for example:-  (Below details are not fixed, these are flexible with current rate)

Loan Amount (₹): ₹ 8000,000

Tenure (Years): 20

Current Interest Rate (%): 9%

Current EMI (₹): ₹ 71,978

When you visit banks for bank loans, they tell you in detail about two types of interest rates i.e. MCLR rate and base rate. As a borrower, here is your EMI likely to be affected by both rates.

Existing borrower under MCLR rates :- Existing borrowers whose loans are linked to the MCLR rate will get a benefit on their EMI "Equated Monthly Instalment" by reducing the bank's MCLR. But only after the reset date of the loans can one get the benefit.

Existing borrower under Base Rate or BPLR :- This is a good opportunity for borrowers whose home loan is still under BPLR or base rate, they may consider converting their existing home loan to MCLR regime to get interest rate benefit. The MCLR and the new external benchmark based governance provide transparency in the transmission of policy rates as compared to the Base Rate and BPLR interest rates. This is why most people go for MCLR and a new external benchmark based regime

Repo rate :- This is where RBI "Reserve Bank of India " lends money to commercial banks.

MCLR Rate :- MCLR "Marginal Cost of Funds based Lending Rate" refers to the minimum interest rate that the bank will charge on the loan; It cannot lend below this rate.

BPLR Rate :- BPLR means "Benchmark Prime Lending Rate". The BPLR was the interest rate offered by a commercial bank to its most creditworthy customers.

Apex Bank :- It is an institution that manages and maintains the money supply, inflation and interest rates of a country. It controls the commercial banking system and acts as the watchdog and regulator of other banks in the country. The Reserve Bank of India (RBI) is the apex monetary institution that controls the Indian rupee, monetary policy and banking system in India.

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