It brought a sense of relief for home loan borrowers with floating-rate loans as the central bank decided to keep the repo rate unchanged at 5.25% during the latest monetary policy meeting concluded on Friday, June 5, 2025. With this decision, the repo rate has now been held steady for the fourth consecutive policy review, extending the period of relatively low interest rates for home loan customers.

The continued pause in rates has helped borrowers maintain stable equated monthly instalments (EMIs). However, the relief may not last indefinitely. Rising inflationary pressures suggest that future policy reviews could still see a change in interest rates, and a possible hike in the repo rate cannot be ruled out in the coming months.

The favorable phase for home loan borrowers began earlier in 2025, when the central bank implemented cumulative repo rate cuts totaling 125 basis points. Following these reductions, many banks passed on the benefit to customers by lowering interest rates on floating-rate home loans. These cuts significantly reduced borrowing costs and eased the financial burden on households.

As a result of the cumulative rate cuts, borrowers continue to enjoy meaningful savings. For example, a borrower with a Rs50 lakh home loan for 20 years saves approximately Rs3,050 per month on EMIs, while a Rs75 lakh loan of the same tenure results in monthly savings of about Rs5,800. These reductions translate into substantial long-term savings over the life of the loan.

Banks also allow home loan borrowers to make partial or full prepayments at any stage of the loan tenure. However, the financial benefit of prepayment is significantly higher when it is done during the early years of the loan, as interest outgo is highest during this period.

When a borrower makes a prepayment, lenders typically offer two options:

• Reduce the EMI while keeping the loan tenure unchanged, or
• Reduce the loan tenure while continuing with the same EMI

Choosing to reduce the tenure generally results in greater interest savings over the long term.

For instance, if a borrower has an outstanding principal of Rs 50 lakh with a remaining tenure of 20 years at an interest rate of 8.5% and switches to a lender offering a 7.5% interest rate, the total interest savings over the loan tenure can amount to approximately Rs 7.47 lakh.

Overall, while the current interest rate environment remains supportive for home loan borrowers, future benefits will depend on upcoming monetary policy decisions and how long the central bank maintains its accommodative stance.