Homebuyers who purchased their homes with loans will remember 2025 as the year that finally brought major relief from high home loan interest rates. They are now stepping into the new year with a sense of comfort and renewed optimism. After nearly three years of high interest rates and heavy EMIs (2022–25), 2025 quietly marked a turning point for borrowers. Inflation cooled faster than expected, prompting the Reserve Bank of India (RBI) to change course — a shift that ultimately lowered borrowing costs for banks.
For home loan borrowers, the situation looked very different at the start of 2025. The repo rate was at a multi-year high of 6.5%, retail inflation stood at 4.31%, and home loan EMIs were eating deep into household budgets. Borrowers were not expecting quick relief.
As 2025 draws to a close, the picture has changed dramatically. Retail inflation declined steadily through the year, touching 0.71% by November. With inflation firmly under control, the RBI had the space it needed to act. Over 2025, spread across six Monetary Policy Committee (MPC) meetings, the central bank cut the repo rate by a cumulative 125 basis points, setting the stage for lower lending rates.
As we move into 2026, the big question for homebuyers is no longer whether relief will come, but how much difference lower rates have already made — and what this means for the road ahead.
How inflation opened the door for rate cuts
The RBI began 2025 focused firmly on keeping inflation under check. Although price pressures had eased compared to earlier years, inflation was still close to the central bank’s comfort zone. The RBI aims to keep retail inflation at 4% with 2% margin on either side.
Things started changing as the year progressed. Food prices softened, global commodity costs cooled, and domestic supply conditions improved. Inflation began falling faster than expected. By November 2025, retail inflation had slipped to 0.71%, far below the RBI’s medium-term target of 4%. While December inflation data will be released in January 2026, the overall trend was already clear.
This sharp fall in inflation gave the RBI confidence to pivot its policy stance. Instead of focusing only on price stability, the central bank began supporting growth and borrowing. The result was a series of repo rate cuts totalling 125 basis points — one of the most meaningful easing cycles in recent years.
Why repo cuts don’t immediately reduce EMIs
For borrowers, however, a repo rate cut does not automatically mean lower EMIs the very next month.
The repo rate is the rate at which banks borrow money from the RBI. When this rate comes down, banks get cheaper funds. But how quickly they pass on this benefit to customers depends on several factors, including how their loans are structured.
Most new home loans today are linked to the repo-linked lending rate (RLLR), which allows faster transmission of rate changes. Older loans linked to benchmarks like MCLR adjust more slowly. Fixed-rate loans, meanwhile, remain unchanged for a defined period.
In 2025, this meant that banks passed on rate cuts at different speeds, and not always to the same extent.
What changed in home loan rates in 2025
| Banks | Rates on Dec 12, 2025 | Rates on Jan 31, 2025 |
| Punjab National Bank | 7.25% | 8.45% |
| Canara Bank | 7.30% | 8.50% |
| Bank of Baroda | 7.45% | 8.40% |
| State Bank of India | 7.50% | 8.50% |
| ICICI Bank | 7.65% | 8.75% |
| IDBI Bank | 7.55% | 8.50% |
| HDFC Bank | 7.90% | 8.75% |
| Note: Lowest floating rates for home loans under Rs.30 lakh; Compiled by BankBazaar.com | ||
At the beginning of 2025, when the repo rate was at 6.5%, home loan rates at most large banks were in the high-8% to low-9% range, depending on credit score and borrower profile.
As the RBI cut rates through the year, banks gradually reduced home loan rates. Some lenders passed on a large part of the cuts relatively quickly, while others moved more cautiously, balancing lower lending rates with pressure on their margins.
Adhil Shetty, CEO of BankBazaar.com, says, “Home loan rates have eased steadily through 2025, with starting rates across major banks falling by around 90 to 120 basis points (bps) between January and December. This reflects the cumulative 125 basis point cut in the repo rate and has improved affordability at a time when household budgets remain stretched. Loans that were priced around 8.4 to 8.8 per cent earlier in the year are now available closer to 7.2 to 7.9 per cent.”
“In this environment, borrowers should look beyond headline rates and focus on how efficiently their lender transmits policy cuts. Periodic reviews, and a willingness to renegotiate or switch if required, can make a meaningful difference to the overall interest outgo over the life of the loan,” he added.
By the end of 2025, borrowing costs were clearly lower than where they started — even though the full 125 bps cut was not always visible in headline rates.
PSU banks quicker in transmitting rate cut benefits to customers
According to Pawan Sharma, Managing Director, TRG Group, “PSU banks have been relatively quick in transmitting the beneficial impact of repo lending rates, but it is expected that private banks will also make a meaningful impact as competition increases. The consistency of monetary policy and market requirements ensures a stable and predictable market for residential growth.
The reduction in home loan rates in PSUs as well as private banks will have a direct impact on the cost of home ownership, which is a necessary development because home buyers in the country are making more informed purchases, he added.
Echoing similar sentiment, Rajat Mehta, Co Founder & Director, ElitePro Infra, said, “The aggregate 125 bp cut in the RBI’s policy rates in 2025 is one of the most drastic easing cycles in recent years and is already beginning to manifest in home loan rates offered by premier PSU and private sector banks. The repo-linked public sector banks have been relatively faster in passing on the cut, resulting in a noticeable reduction in effective home loan rates and EMIs. Private sector banks, while being slightly more measured in their transmission, are also likely to revisit their lending rates to be competitive.”
Ishaan Singh, Director, AIPL, says, “RBI’s cumulative 125 bps repo rate cut in 2025 has started changing how buyers look at affordability on the ground. With most home loans now linked to external benchmarks like EBLR, people are finally seeing interest costs ease, and banks are passing on the benefit either through lower EMIs or shorter loan tenures… As EMIs become more manageable, buyers’ confidence is returning, site visits are converting faster, making aspiration financially achievable.”
EMI impact: How much money borrowers actually saved
For most homebuyers, the real impact of rate cuts was felt not in percentages, but in monthly EMIs.
Consider a simple example:
Loan amount: Rs 50 lakh
Tenure: 20 years
At the start of 2025, when home loan rates were close to 9%, the monthly EMI was around Rs 45,000–Rs 46,000.
As banks passed on the rate cuts and lending rates moved closer to 7.75–8%, the EMI dropped to roughly Rs 41,500–Rs 42,500.
That means borrowers saved about Rs 3,000–Rs 4,000 every month.
Over a 20-year loan tenure, this seemingly small monthly saving adds up to Rs 7–10 lakh in total interest savings, depending on the exact rate and reset structure. This clearly shows why even modest interest rate changes matter so much for long-term home loans.
Who benefited more: New borrowers or existing borrowers?
New homebuyers were the first to benefit, as they entered the market at lower interest rates.
For existing borrowers, the impact depended on how their loans were structured. Those with repo-linked loans saw quicker relief, either through lower EMIs or shorter loan tenures. Borrowers on older benchmarks like MCLR had to wait longer for rate resets.
This difference explains why 2025 also saw a rise in rate reset requests, negotiations with banks, and home loan balance transfers, as borrowers actively looked for better deals.
Why didn’t banks pass on the full cuts immediately
While the RBI cut rates aggressively, banks faced their own challenges. Deposit rates did not fall as quickly as lending rates, putting pressure on banks’ profitability.
As a result, lenders had to strike a balance — offering lower rates to remain competitive while protecting their margins. This is why home loan rates fell gradually, rather than matching the full 125 bps repo cut instantly.
Did lower rates revive housing demand?
Lower EMIs did improve affordability, especially in the second half of 2025. Buyer sentiment turned more positive, and housing demand showed signs of revival.
However, interest rates were not the only factor. Income growth, job stability and property prices continued to play a major role in purchase decisions. The recovery in housing demand was steady, not dramatic.
What 2025 taught home loan borrowers — and what 2026 holds
The past year offered some important lessons for homebuyers:
Falling inflation — from 4.31% in January to 0.71% in November — changed the interest rate cycle.
Repo cuts matter, but how banks transmit them matters just as much.
Even small rate changes can save lakhs of rupees over long loan tenures.
As 2026 begins, the environment for homebuyers looks far more supportive than it did a year ago. Inflation is low, rates have already come down, and expectations are more positive.
That said, interest rate cycles move in phases. Staying aware of loan benchmarks, reset dates and EMI structures will remain crucial. If 2025 showed anything, it is this: understanding how rates work can quietly make a big difference to household finances — one EMI at a time.