RBI MPC 2025: Will Further Rate Cut Bring Relief To Home Loan Borrowers

The Monetary Policy Committee's (MPC's) decision in December 2025 to cut the repo rate by 25 basis points to 5.25 per cent has given a year-end boost for home loan borrowers. The reduction caps a year that has already seen a steady easing cycle, and borrowers now stand to gain from the full 125 basis points of cumulative cuts announced across 2025. Industry experts expect the latest cut to accelerate loan demand, improve affordability and lift consumer sentiment in the housing market.

Rate Cut Cycle Strengthens Through The Year

This year's easing began with a 25bps cut in February, followed by another 25bps reduction in April. A larger 50bps cut then came in June. The MPC held rates steady in October before delivering the final 25bps cut in December. A total of 125bps rate cut places policy rates at the lowest level in almost three years.

RBI has justified the rate cycle on the back of low inflation, stronger domestic growth, and the need to support consumption. Liquidity measures announced during the year also strengthened transmission within the banking system. Analysts believe this sets the stage for banks and housing finance companies to accelerate lending at more competitive rates.

"This only reinforces the recent trend," said Amit Prakash, Co-founder and CEO, Urban Money. "The 25 basis point reduction in the repo rate is well-timed and adds to monetary support when the domestic fundamentals remain constructive. This reduction also follows cuts made earlier in the year and reinforces transmission with lending rates trending lower."

What A 125 Basis Point Reduction Means For Borrowers

The most direct and immediate impact will be on floating-rate home loan borrowers. Loans linked to external benchmark rates mirror policy changes quickest. For Example, on a typical Rs 50 lakh, 20-year home loan, the combined rate cuts of 2025 can bring in considerable savings.

This means a borrower who allows EMI to fall can save around Rs 9.29 lakh in lifetime interest. Another who keeps EMI constant and allows tenure to shrink can save Rs 18.32 lakh approximately, with the repayment period reducing by 42 months. These differences underline why the choice between lower EMI and shorter tenure matters in a falling rate environment.

Adhil Shetty, CEO and co-founder, BankBazaar.com, pointed out the scale of benefit. "With a 25 basis point cut, policy is now more clearly aligned towards supporting growth. The cumulative 125 basis point reduction this year has already eased equated monthly instalments (EMIs). For a Rs 50 lakh loan over 20 years, the fall in rates can reduce lifetime interest outgo by about Rs 9 lakh." He added that existing borrowers who keep EMIs unchanged can strengthen long-term savings through faster principal repayment.

Industry Expects Rise In Demand And Better Liquidity

While demand for housing loans has remained steady during the year, industry watchers expect the latest rate cut to improve affordability across all income groups. Digital marketplaces and fintech platforms are also seeing a rise in early enquiries.

According to Pramod Kathuria, CEO and co-founder, Easiloan, lower rates are already encouraging more buyers to consider their options. "The 25 basis point rate cut by the RBI is a favourable signal for future home buyers. Borrowers will benefit the most from lower EMIs and new ways of planning their finances for a longer period. The increase in enquiries is already evident, and digital platforms are in a good position to help clients compare and secure suitable loan options."

NBFCs and digital lenders expect this environment to ease cost pressures and widen access. Rohit Garg, CEO of Olyv, termed the decision as supportive. “RBI's move to cut the repo rate by 25 bps to 5.25 per cent marks a clear and growth-oriented shift in policy. Digital lenders and NBFCs will, with this move, see increased liquidity, a lesser overall cost of capital, and an enhanced ability on our part to deliver more efficient and customer-centric credit solutions."

He added that the rate cut was likely to lift consumer confidence among both salaried and self-employed borrowers. Higher demand for small-ticket credit would arise consequently.

Microfinance lenders, too, see scope for enhancement of borrower affordability. According to Satin Creditcare's group controller, Jugal Khataria, the policy turnaround would improve access to competitive credit. "The reduction in RBI policy rate will help borrowers with further reduction in interest rates. The reduced cost of funds will also help in providing affordable credit to SME customers and housing finance borrowers."

According to Vinayak Deousker, CBO, Easy Home Finance, "Interest rates inherently move in cycles, and today’s reduction should be viewed as an opportunity to strengthen not stretch one’s financial position. Households benefit most when they maintain adequate buffers, avoid unnecessary leverage, and continue to plan their EMIs with a long-term lens."

Transmission Will Determine The Pace Of Relief

While external benchmark-linked loans will move fast, older benchmark loans, such as MCLR or base rate, may take some time to reflect the new repo rate. Borrowers are expected to review their loan statements over the coming weeks to grasp the revised schedules. Many banks tend to adjust MCLR-based loans with a lag.

The timing of transmission could also vary depending on liquidity and internal cost structures. Borrowers intending to restructure their repayment strategy could thus opt for a tenure reduction when the motive is long-term savings. The present environment may also be opportune for prospective buyers, although experts feel that deposit rates are likely to soften further and therefore affect the savers.