RBI Repo Rate Cut 2025: How Your Home Loan EMIs and Tax Deductions Will Change

The Reserve Bank of India (RBI) made headlines in June 2025 by cutting the repo rate by 50 basis points (bps), bringing it down to 5.50%. This move is expected to bring significant changes to both borrowers and investors. Whether you're planning to buy a home, already servicing a loan, or relying on fixed deposits for income, this change could affect your financial strategy.

Let's break down what this means in simple terms and see how your home loan EMIs, tax deductions, and FD returns are likely to change.

What is the Repo Rate?

The repo rate is the interest rate at which the RBI lends money to commercial banks. When the repo rate goes down:

• Borrowing becomes cheaper for banks.

• Banks, in turn, may lower interest rates on loans.

• Returns on savings and fixed deposits may also drop.

So, a repo rate cut benefits borrowers by reducing EMIs but affects investors looking for safe returns through fixed deposits.

Latest RBI Repo Rate History

Here’s a quick look at how the repo rate has changed recently:

The total cut of 100 bps in 2025 alone shows RBI’s focus on stimulating growth and improving liquidity.

How Does It Impact Your Home Loan EMI?

If your home loan is linked to the repo rate — which is now common with floating rate home loans — the impact is direct and quick.

Example 1: ₹50 Lakh Home Loan (20 Years)
With the new repo rate cut:

• Monthly EMI may reduce by approximately ₹1,960

• Total savings over the loan tenure could be nearly ₹4.7 lakh

Example 2: ₹30 Lakh Home Loan (20 Years)
Borrowers may see an EMI reduction of about ₹1,176 per month.

Pro Tip: Instead of lowering your EMI, you can continue paying the same amount and reduce the overall tenure, helping you save on interest in the long run.

How Much Can You Save Annually? A Practical Table

These savings will add up over time, making this rate cut a major relief for borrowers.

Tax Deduction Opportunity

A reduction in EMI doesn't just improve monthly cash flow. It also opens up room for smarter tax planning:

• Section 80C: Deduction of up to ₹1.5 lakh on principal repayment.

• Section 24(b): Up to ₹2 lakh deduction on home loan interest.

Lower EMIs may allow you to use the extra funds for top-up loans or home renovation, both of which are eligible for deductions.

Expert Tip: If you're nearing the deduction limits, consider a co-borrower (like a spouse) to claim benefits separately.

Impact on Fixed Deposit (FD) Returns

While borrowers cheer, conservative investors may need to re-evaluate their strategies. When the repo rate drops, banks often follow by cutting FD rates.

Recent FD Rate Changes Post-April 2025

Tip for FD Investors:

• Lock in FD rates before banks reduce them further.

• Consider small savings schemes like Senior Citizens Savings Scheme (SCSS) or RBI Floating Rate Bonds.

Broader Economic Impacts of a Repo Rate Cut

Should You Refinance Your Existing Loan?

If your loan isn’t yet linked to the repo rate, now may be a good time to shift:

• Floating Rate to Repo-Linked Loan: Transmission is faster.

• Check Processing Fees: Compare total cost vs. savings.

• Evaluate Tenure vs. Rate: Shorter tenures benefit more from rate cuts.

Case Study: Ravi, a 35-year-old IT professional, switched from a base rate-linked home loan to a repo-linked one in January 2025. By June, after a total 100 bps cut in 2025, his EMI reduced by ₹3,900. Over the next 15 years, he expects to save over ₹6 lakh in interest.

Key Takeaways

• The 50 bps repo rate cut in June 2025 brings EMIs down for home loan borrowers.

• A total 100 bps cut in 2025 means cumulative savings of ₹3,800–₹4,000/month on ₹50 lakh loans.

• FD investors should act fast to lock in current rates.

• The economy is expected to benefit from increased spending and investment.

What Should You Do Now?

• Home Buyers: This could be your chance to enter the market with reduced interest burden.

• Loan Holders: Ask your bank to pass on the benefit or consider switching.

• FD Investors: Reassess your portfolio and explore alternatives.

For more updates, financial strategies, or personalized tips, stay connected with us.

Frequently Asked Question

• Will all banks reduce my EMI immediately?

No. Banks take time to pass on repo rate cuts. Keep an eye on your bank’s rate circulars.

•  Should I refinance my home loan now?

Yes, if you’re paying above 8% interest. Compare rates and check transfer costs.

• Is it a good time to buy a house?

If your finances are in place, yes. Lower interest rates improve affordability.

• Will FD rates drop for sure?

Very likely. FD rates track repo rate trends. Act fast to secure existing rates.