How can RBI's rate cut lower your home loan and personal loan EMIs or tenure? We explain

RBI rate cut: The Reserve Bank of India Governor Sanjay Malhotra on April 9 announced that the central bank is cutting repo rate by 25 bps to 6 per cent with immediate effect. Further, the RBI's Monetary Policy Committee has changed its policy stance to ‘accommodative’ from ‘neutral’.

This comes after the RBI in February, for the first time in nearly five years, slashed interest rates by 25 bps to 6.25 per cent from 6.5 per cent. 

What Does RBI's Rate Cut Mean for Borrowers?

If banks transfer interest rate relief to customers, the 25 bps rate cut is expected to reduce EMI amounts significantly. It thus means a lot for borrowers — especially in terms of home loans and personal loans.

Experts anticipate that banks passing on the benefit will reduce home loan interest rates by around 8 per cent and provide considerable relief to common borrowers. Umesh Gowda HA, Founder-Chairman of Sanjeevini Group, said, “The two consecutive rate cuts will give a fillip to the housing sector as rate cut transmission by banks will lead to home loan rate falling below 8 per cent for most banks, thereby benefitting a large section of new and existing borrowers.”

Pradeep B, Business Head-Housing Loans and Micro Mortgages at Ujjivan Small Finance Bank, felt that the RBI's move could “immediately ease the burden of floating rate home loan borrowers by enabling banks to pass on the rate cut at the specified reset date”. He added that the RBI's move facilitates the lowering of either EMIs or tenures for customers, thereby reducing the financial liability and boosting affordability. 

According to Anil Rego, Founder and Fund Manager at Right Horizons, the RBI's rate cut decision “is likely to lower borrowing costs, boost liquidity, and support domestic demand—especially as fiscal measures and improving rural prospects kick in.”

Meanwhile, Arvind Kapil, MD and CEO of Poonawalla Fincorp feels, the repo rate cut, “will stimulate the banking and financial services ecosystem in the right direction and support the broader goal of sustaining a healthy and resilient economy”.

What Do Experts Say: Can Borrowers Look Forward to Some Relief?

• According to Boman Irani, President at CREDAI National, the RBI's decision to reduce repo rate “is likely to improve home loan affordability, stimulate housing demand, and provide a strong impetus to the mid-income and affordable segments, where interest rate sensitivity remains high.”
• Anshul Jain, CEO, India, SEA & APAC Tenant Representation, at Cushman & Wakefield, feels that the rate cut is a particularly positive development for the housing market. “The RBI’s shift in stance to ‘accommodative’ sends a strong signal of its intent to support growth. This will definitely encourage homebuyers' sentiment in mid-segment, often seen as the major category within the housing market demand.”
• Aman Sarin, Director and CEO of Anant Raj feels this rate cut will make home loans more affordable for buyers. “This change in stance is extremely encouraging, especially for the housing sector. We anticipate more rate cuts in the coming quarters, and the biggest beneficiaries will be home loan borrowers—particularly those taking large-ticket loans for mid and premium homes. Lower interest rates enhance both affordability and loan eligibility, helping many fence-sitting buyers finally make their purchase decisions,” Sarin said.

‘Buyers Across Segments … Fence-Sitters to Be Encouraged’

• Udit Jain, Director of ONE Group Developers thinks that the move will lower interest rates on home loans and “benefit buyers across segments, from affordable housing to premium and luxury categories, making homeownership more accessible and attractive”.
• Samir Jasuja, Founder and CEO of PropEquity noted that house prices have jumped 50 per cent post-Covid, and feels that the two consecutive rate cuts “will provide a cushion to home loan borrowers as EMIs will come down” and fence-sitters will thus be encouraged to make home purchases.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.