Switch Your Home Loans To Make Most Of RBI Rate Cut, Says Report

With the Reserve Bank of India (RBI) reducing the repo rate for the second time this year, home loan borrowers might have a good reason to reconsider their loans. 

According to the Home Loans Made Easy report by BankBazaar, home loan rates have dropped below 8 per cent, which provides a golden opportunity for borrowers to refinance their loans and save substantially on their equated monthly instalments (EMIs).

For those who took loans before 2019, chances are they are still repaying loans benchmarked to older systems like MCLR, base rate or PLR, according to the report.

It said nearly 38 per cent of outstanding floating rate home loans are still tied to MCLR or older benchmarks. This could mean higher EMIs, slower rate cuts, and missed savings, it added.

Refinancing in a Falling Rate Cycle

Refinancing means transferring your existing home loan to a fresh loan—either from the same lender or a different one—at a lower rate of interest.

Refinancing during a declining rate cycle can result in heavy monetary savings, particularly if undertaken in the first half of the loan period, the report says.

The report also cited an example of a borrower who took a loan of Rs 1 lakh for a 20-year tenure at a rate of interest of 9 per cent. He has already served 10 years with the loan and still owes Rs. 71,026 in outstanding.

The report said that if they refinance to a 7.85 per cent loan and keep the same EMI of Rs. 900, they can cut their loan tenure by nine EMIs and save Rs. 7,008 even after refinance charges.

But if they keep with the existing rate of interest, they will pay Rs. 36,941 more in interest. 

This method, the report said, can help borrowers leverage their existing EMI discipline to achieve maximum savings on interest outgo.

Who Can Benefit the Most

The report has listed some of the borrower profiles who stand to gain immensely through refinancing. 

They include those on older references, such as base rate, MCLR or PLR, those with higher credit scores over 750, and those with regular income. 

Government employees and those of large corporates and female employees can also take benefit of this loan switch facility. Female borrowers are even likely to receive preferential interest rates from a few lenders under special initiatives for encouraging ownership, the report added.

Repo-linked loans, which now form over 60 per cent of outstanding home loans, reset quarterly and reflect RBI’s policy changes quickly and at no cost. This transparency and speed give borrowers an edge in managing their long-term housing expenses.

Internal Refinance Vs Balance Transfer

The report also illustrated rwo refinance options. An internal refinance with the existing lender was the best option if the bank agreed to transfer the loan to a newer benchmark, such as the repo rate. This is an easy process, has little paperwork, and most often does not require closing down the existing loan, the report said.

Conversely, a balance transfer to another lender involves taking a new loan to pay off the old one. This involves more paperwork and can involve processing fees, legal fees and pre-closure fees—but can be worthwhile if the new rate is considerably better.

The report adds that refinancing is usually advisable in the initial years of the loan when EMIs are interest-oriented. Even a reduction in rate by 50 basis points (bps) can result in substantial savings.

Why Your Loan Benchmark Matters

Understanding your loan benchmark is critical. Repo-linked loans, also known as EBLR or RLLR loans, offer quick, automatic and free rate resets.

MCLR loans reset every 6-12 months and may not reflect the repo rate changes fully. 

Base rate and PLR loans often require borrower action to reflect any rate cut and may include fees. Switching to a repo-linked loan ensures that borrowers benefit from the RBI’s monetary policy decisions without delays or hidden charges.

Where To Find the Lowest Rates

As of May 2025, public sector banks hold the largest market share in the lowest-rate category. 

Canara Bank has the lowest rate of interest (7.80 per cent), followed by Bank of Maharashtra, Central Bank of India and Union Bank at 7.85 per cent. Most large public sector banks have EMIs of about Rs. 824–836 per lakh for a 20-year loan. 

By contrast, non-banking financial companies (NBFCs) and private banks generally provide a higher rate of interest of 8.50 to 10 per cent—based on the borrower's risk profile and type of income.

The report further said that borrowers with small loans of less than Rs 35 lakh, good credit records, and stable income profiles are in a better position to be offered the best deals.

Now is the Time to Act

Adhil Shetty, CEO, BankBazaar, said that with repo-linked rates falling below 8 per cent, it's the best time to go for a switch.

“Borrowers must look at switching to a repo-linked, floating rate loan from a bank to realise greater savings and greater flexibility,” he said.