RBI cuts repo rate by 50 bps: How your home loan EMIs will be affected instantly
You may be relieved that the recent 50 bps (0.5%) cut in interest rates by the Reserve Bank of India (RBI) will result in lower EMIs (Equated Monthly Instalments) on home loans. But do you know that the time it takes for the rate cut to have an effect on your EMIs will depend on the type of loan that you have taken?
For instance, if your home loan is based on MCLR (Marginal Cost of Funds based Lending Rate) the changes would take longer to reflect on your EMIs. But if you have taken RLLR (Repo Linked Lending Rate) home loans, the impact of RBI's rate cuts on your EMIs will be faster. RLLRs are a fairly recent phenomenon wherein the home loan interest rate is reset every three months and is tied to RBI's prevailing repo rates.
In contrast, MCLR is based not just on the repo rate but also the liquidity in the banking system and cost of funds incurred by banks. As a result, the transmission of interest rate changes is slower in MCLR compared to RLLR.
Here is a guide on home loans based on repo rates, its features, advantages and disadvantages.
What is RLLR in home loans?
As the name implies, RLLR is linked to the repo rate set by the RBI. A repo-linked home loan is a floating-rate loan where the interest rate moves in sync with the RBI's repo rate. If the repo rate drops, your loan interest drops. If it rises, your interest goes up.
Banks and financial institutions calculate RLLR by taking into account the prevailing repo rate and the spread. The spread is the additional percentage banks charge to cover their operational costs and also includes their profit margins. It varies from 2.5%-3% depending on the lender. So, the interest rate will work out to 8%-8.5% per year (the current repo rate of 5.5% plus the spread) for RLLR-based home loans.
'Repo-linked loans are more transparent, fair, and responsive. They're ideal if you want to benefit from falling rates and don't mind some variability,' says Samit Shetty, founder of Nivāsa Finance, a provider of home loan advisor networks.
'Unlike MCLR or base rate loans, repo-linked loans do not rely on internal bank calculations, providing greater transparency. Interest rates adjust typically every three months compared to 6-12 months in MCLR loans leading to quicker benefit (of) transmission during repo rate cuts,' says Foram Naik Sheth, NPV Associates LLP, a Mumbai-based Chartered Accountancy firm.
'Most older home loans (like MCLR or base rate) didn't pass on RBI rate cuts quickly. With repo-linked loans, banks are required to update your rate promptly—usually every three months,' Shetty says. Further, the bank has full control over interest rates in MCLR-based loans while in RLLR-based loans the change in rates happen automatically.
What are the advantages and how does it affect EMIs?
RLLR-based home loans are quite advantageous in a falling interest rate cycle. For instance, RLLR has come down by 1% since the beginning of 2025 (from around 9% in January to about 8% after the latest rate cuts). The RBI has cut rates for the third consecutive time in 2025 reducing it by 100 bps (1%) bringing the repo rate to 5.5%, its lowest level since August 2022.
So, in six months the savings in EMI would be quite significant. If you have taken a home loan of ₹40 lakh with a tenure of 20 years, then the prevailing interest rate of around 8.5% will come down to 8% after the latest rate cut. As a result, the EMI on the ₹40 lakh loan will come down from around ₹34700 to about ₹33450, a drop of ₹1250. If the rate cut holds, you would be able to save ₹30 lakh, which is equivalent to nearly 10 months of EMI payments, over the full tenure of the loan.
'In a falling interest rate scenario, repo-linked home loans lead to quick reduction in home loan rates, as they are tied to the RBI's repo rate. This results in either lower EMIs or faster loan repayment,' Sheth says. The reduction in repo rates by RBI will start reflecting in EMIs from August for RLLR-based loans whereas it can take up to December for any changes to occur in MCLR-based loans.
What are the disadvantages?
Though RLLR-based home loans come with a lot of advantages, there are some disadvantages as well. Interest rate risk is the biggest shortcoming in RLLR-based loans. If the RBI decides to increase repo rates, you will end up paying higher EMIs. 'When RBI hikes rates, your EMI goes up just as fast. Be prepared for fluctuations. It's great in a falling-rate market, but not ideal if rates rise,' Shetty says.
'In case of increase in repo rate, the EMIs can rise quickly making it more volatile than any other loans. Further, since the rates reset every three months, EMIs or loan tenure can change frequently,' Sheth says. Though the same is true for MCLR-based home loans, the faster transmission of interest rate changes means that the effect will be quicker in RLLR-based loans.
Can borrowers switch to RLLR?
Borrowers can switch to RLLR-based home loans by making a request to the lender. If the lender offers RLLR-based loans, you can switch your existing loan after paying the necessary fee. 'If you're still on MCLR or base rate, you can request your bank to switch usually by paying a small fee ( ₹1,000– ₹2,000). If your lender is an HFC (like LIC Housing), you can refinance with a bank that offers repo-linked loans,' Shetty says.
But make the switch only if you are sure about the savings. Borrowers, who have a long repayment tenure, say 10 years or more, can consider shifting their loans to RLLR as the savings on interest can be substantial.
Even in this case, you must be prepared for interest rate risks as the cycle can turn any time. If you are nearing the completion of your loan tenure, it is better to stay with the existing structure as you will be paying unnecessary expenses besides exposing your loan to interest rate risks.
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