How RBI’s Repo Rate Cut Impacts Home Loan Interest Rates for 2025

As of April 9th, 2025, the RBI reduced the repo rate by 25 basis points (bps). It brought it down from 6.25% to 6.00%. This is the second reduction in 2025, with the previous cut also being 25 bps in February 2025.

The Reserve Bank of India (RBI) provides funds to commercial banks at a specified interest rate called the repo rate. When banks face a shortage of funds or need to meet regulatory requirements, they can borrow money from the RBI at this rate.

As of April 9th, 2025, the RBI reduced the repo rate by 25 basis points (bps). It brought it down from 6.25% to 6.00%. This is the second reduction in 2025, with the previous cut also being 25 bps in February 2025. However, the reverse repo rate (the rate at which banks can deposit their surplus funds with the RBI) remains unchanged at 3.35%.

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This decision to lower the repo rate directly impacts the home loan interest rates. Are you also a home loan borrower? Can your EMIs decrease? In this article, let’s understand in detail how RBI’s repo rate cuts are expected to impact home loan interest rates in 2025. Also, we will study the various implications of an income tax notice section 142(1) on home loan borrowers.

How do RBI repo rate cuts in 2025 impact your home loan interest rates

The RBI’s repo rate cuts in 2025 are set to make home loans cheaper. However, the extent and speed of benefit depend largely on the:

• Type of loan

and

• The benchmark it is linked to

Let’s understand in detail:

1. Immediate impact on repo-linked loans

When the RBI reduces the repo rate, borrowers with “floating-rate home loans” are likely to see a decrease in their interest rates. For the unaware, such a home loan is directly linked to the repo rate.

The home loan interest rates on this type are adjusted periodically (usually every three months), as mandated by RBI guidelines. Therefore, when the repo rate decreases:

• The interest rates on these loans also reduce

and

• It leads to lower EMIs

However, the exact timing of the rate adjustment varies. It depends on the specific reset dates set by the lending bank. As a borrower, you can expect the reduction to be applied within a quarter. However, some banks may pass on the benefits sooner, while others may delay the adjustment slightly.

2. Slow impact on MCLR and base rate loans

The impact of the repo rate cut is less immediate and less direct for borrowers with loans linked to older benchmarks, such as:

• The Marginal Cost of Funds-based Lending Rate (MCLR)

or

• The base rate

These lending rates are calculated based on a bank’s cost of funds and not the repo rate. As a result, the reduction in the repo rate may not be fully or quickly passed on to borrowers under these benchmarks.

Additionally, MCLR and base rate-linked loans usually have longer reset periods. Usually, it ranges from three months to one year. Borrowers with such loans may not experience a decrease in home loan interest rates until the next reset period.

However, if you, as a borrower, want to lower your EMI, you may consider switching to repo-linked loans.

3. Fixed-rate loans remain unchanged

Home loans with fixed interest rates remain unaffected by changes in the repo rate. Fixed-rate loans maintain the same interest rate (regardless of fluctuations in the repo rate) for:

• The entire tenure

or

• A specified fixed period

Consequently, borrowers with fixed home loan interest rates will not benefit from the current repo rate reduction. However, in 2025, if you consider refinancing your loans, you may find it advantageous to switch to a floating-rate or repo-linked loan.

But before making this decision, you should evaluate the costs associated with refinancing. Usually, while transferring home loans, you have to incur:

• Processing fees
• Foreclosure charges
• Transfer fees, and more

Thus, always compare these costs against the expected savings in interest payments.

Will your home loan interest rates fall? Check your loan type

It entirely depends on your loan type! Study the table below:

Loan type	Impact of repo rate cut	Speed of transmission
Repo-linked home loans	Immediate reduction in rates	Within 1 to 3 months
MCLR/ Base rate-linked home loans	Partial and delayed transmission	Several months. Usually, not fully passed on.
Fixed-rate home loans	No immediate impact	None (unless refinanced)

Are more repo rate cuts coming in 2025

According to SBI Research, the RBI is expected to further reduce the repo rate by 1.25% (125 basis points) in this financial year. This would bring the repo rate down to a range of 5.0% – 5.25% by March 2026.

The central bank is projected to implement these cuts in stages:

• Starting with a 0.75% (75 bps) reduction in June and August 2025
• Followed by an additional 0.5% (50 bps) cut in the second half of FY 2025-26.

If these predictions hold, you could see substantial reductions in home loan interest rates and EMIs over the next few quarters.

Jumbo cuts are also a possibility!

SBI Research also suggests that the RBI might consider implementing larger cuts of 50 basis points in one go, rather than spreading the cuts across smaller tranches of 25 bps each.

Such larger cuts will have a more immediate impact on home loan interest rates and provide quicker relief to borrowers. However, the likelihood of such jumbo cuts will depend on:

• Economic conditions
• Inflation trends
• RBI’s monetary policy stance in the coming months.

Got Income Tax Notice 142(1)? Learn what it is and how to respond

Income tax notice section 142(1)​ is issued by the Income Tax Department to request additional information from a taxpayer. The notice may be sent even if you have already filed your tax return.

Usually, it requires you to provide documents related to your:

• Income
• Assets
• Specific financial transactions (like availing of a home loan)

The purpose is to verify the accuracy of your tax return or gather more details for assessment. Have you also received an income tax notice section 142(1)​? Let’s understand its three major implications:

1. Financial document verification

If you have taken a home loan, the income tax notice section 142(1)​ may require you to submit documents related to your loan, such as:

• Interest certificates
• EMI payment records
• Proof of property ownership

This happens because the tax authorities may want to verify deductions claimed under Sections 24(b) and 80C. For the unaware, under these sections, you are allowed to reduce your taxable income with these amounts:

• Home loan interest

and

• Principal repayment

If there are discrepancies between the information provided and the details available with the tax department, it could result in a reassessment of your income.

2. Loan processing and approval delays

If you are in the process of applying for a new home loan and receive an income tax notice section 142(1)​, it can complicate matters! Usually, lenders consider it a red flag, as it indicates your financial situation is under review.

As a result, banks may:

• Delay processing your loan

or

• Require more documents to ensure that your tax liabilities are clear.

If the issue is unresolved, it may even result in the rejection of your application.

3. Impact on creditworthiness

Failure to respond to an income tax notice section 142(1)​ can lead to a “Best Judgement Assessment”. In this type of assessment, the tax officer makes an income estimate based on available information.

This may result in an increased tax demand or penalties, which could affect your ability to repay the home loan. Non-compliance also impacts your credit score and makes it harder to secure future loans.

What should home loan borrowers do?

If you are a home loan borrower and have received an income tax notice section 142(1), you must respond to it accurately. With the implementation of the Faceless Assessment Scheme, nearly all income tax assessments are now conducted electronically.

Thus, to respond online, you should follow these steps:

Step I: Access the notice

• Log in to the Income Tax e-Filing Portal using your credentials.
• Navigate to the ‘e-Proceedings’ section to view the notice details.

Step II: Review the requirements

• Carefully read the notice to understand the specific information or documents requested.
• Some common documents requested are:
  • Bank statements
  • Proof of income
  • Details of property transactions
  • Explanations for large financial movements

Step III: Gather necessary documents

• Collect all relevant documents related to your home loan, such as:
  • Loan sanction letter
  • Repayment schedule
  • Interest certificates
  • Bank statements showing EMI payments
  • Property purchase agreements

Step IV: Submit your response

• Use the ‘e-Proceedings’ utility to upload the requested documents and provide explanations as needed.
• Make sure that all submissions are made within the deadline mentioned in the notice.

Conclusion

In 2025, the RBI’s repo rate cuts are expected to reduce home loan interest rates. However, the impact varies based on loan type. Repo-linked loans will see immediate rate reductions within a quarter, while MCLR and base rate-linked loans will see slower and partial transmission. On the other hand, fixed-rate loans remain unaffected unless refinanced.

Additionally, research shows a total of 1.25% repo rate cut by March 2026. If this happens, it could further lower EMIs and home loan interest rates.

However, receiving an income tax notice section 142(1) can complicate matters! It can delay your loan processing time and impact your creditworthiness. Thus, as a home loan borrower, you should respond promptly to such notices and make timely submissions of requested documents.