How Falling Repo Rates Reduce Your Home Loan EMIs: When the Reserve Bank of India (RBI) cuts the repo rate, borrowers often expect one immediate benefit: lower EMIs. While that does happen in some cases, the real and long-lasting advantage of falling interest rates works more quietly in the background. Even when your monthly EMI does not reduce visibly, a falling repo rate can significantly shorten your home loan tenure and reduce your total interest burden over time.
To understand how this works, it is important to look at how repo rate cuts influence bank lending rates and how EMIs are structured.
What Is the Repo Rate and Why It Matters
The repo rate is the interest rate at which the RBI lends money to commercial banks. When the RBI reduces the repo rate, banks can borrow funds at a lower cost. This, in turn, allows them to lower their lending rates on loans such as home loans, car loans, and personal loans—especially those linked to external benchmarks like the repo rate.
Over the past year, the RBI has implemented successive repo rate cuts, resulting in a cumulative reduction of 125 basis points (bps). According to RBI Governor Sanjay Malhotra, these cuts have translated into a 105 bps decline in the weighted average lending rate (WALR) of scheduled commercial banks. As of the February 2026 monetary policy, the RBI has kept the repo rate unchanged at 5.25 percent.
How Banks Pass on Repo Rate Cuts to Borrowers
Most floating-rate home loans today are linked to benchmarks such as:
- Repo Linked Lending Rate (RLLR)
- External Benchmark Lending Rate (EBLR)
When the RBI cuts the repo rate, banks revise these benchmark-linked lending rates downward. For example, after the December 2025 repo rate cut, the State Bank of India (SBI) reduced its RLLR and EBLR to 7.90 percent.
For new borrowers, this directly means lower EMIs at the time of loan disbursement. For existing borrowers, the impact is more nuanced and depends on how the bank adjusts EMIs—either by reducing the EMI amount or by keeping the EMI constant and reducing the loan tenure.
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Understanding EMI Composition: Interest vs Principal
Every EMI consists of two components:
- Interest component
- Principal repayment component
In the early years of a home loan, a large portion of the EMI goes toward paying interest, while only a small amount reduces the principal. As interest rates fall, this balance slowly shifts.
When banks lower lending rates but keep the EMI amount unchanged, the interest portion reduces and the principal portion increases. This change happens gradually but consistently with each EMI.
Why Your EMI May Not Reduce, But You Still Benefit
Many borrowers feel disappointed when their EMI amount remains the same despite repo rate cuts. However, this does not mean they are missing out on benefits.
Instead of lowering the EMI, banks often allow the loan tenure to shrink. This means:
- You repay the loan faster
- You pay interest for fewer years
- Your total interest outgo reduces significantly
Over time, even small increases in principal repayment per month can shave off months or even years from a long-term home loan.
Case Study: How Falling Rates Changed a Home Loan
Consider the example of Hemant Kumar (name changed), a home loan borrower living in a Tier IV town.
- Property value: ₹25 lakh
- Down payment: ₹8 lakh
- Home loan amount: ₹17 lakh
- Loan tenure: 30 years
- EMI: ₹13,200
- Loan type: Floating-rate home loan
At the time of loan disbursement in April 2024, the bank’s EBLR stood at 9.15 percent, while the RBI repo rate was 6.50 percent.
In 2025, the RBI cut the repo rate multiple times—from 6.25 percent in February to 5.25 percent in December, a total reduction of 125 bps. The bank passed on these cuts fully, reducing its EBLR by the same margin.
By February 2026, after paying 22 EMIs, Kumar’s home loan interest rate had fallen to 7.35 percent, down from 7.60 percent in December 2025.
How This Impacts Loan Tenure
Although Kumar’s EMI remains at ₹13,200, the principal component of each EMI has increased month-on-month due to the lower interest rate. As a result:
- More of each EMI now goes toward reducing the loan balance
- The outstanding principal declines faster
- The overall loan tenure is likely to reduce significantly
This benefit may not be immediately visible on a monthly basis, but over years, it compounds into substantial savings.
Role of Amortisation Schedules
Banks provide borrowers with an amortisation schedule, which clearly shows how each EMI is split between interest and principal. Whenever lending rates change, banks update this schedule and inform borrowers—usually via SMS—before the next EMI is deducted.
Borrowers who regularly review their amortisation schedule can clearly see how falling rates are accelerating principal repayment.
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Long-Term Benefits for Borrowers
Falling repo rates offer several long-term advantages:
- Faster loan closure
- Lower total interest paid over the loan’s life
- Improved household cash flow
- Reduced financial stress in later years
Even without a visible EMI reduction, borrowers quietly move closer to debt-free home ownership with every instalment.
