RBI Repo Rate Cut to 5.25% (Dec 2025): What It Means for Home Loan Borrowers

The Reserve Bank of India (RBI) has delivered a year-end gift to borrowers. In its Monetary Policy Committee (MPC) meeting on December 5, 2025, the central bank announced a reduction in the repo rate by 25 basis points (0.25%), bringing it down to 5.25%. This cut marks a cumulative reduction of 125 basis points throughout 2025, signaling a decisive shift toward a lower interest rate regime.

Why Did RBI Cut the Rate?

The decision was driven by two primary factors:

• Inflation falling well within the RBI's comfort zone.
• A strategic push to accelerate economic growth and boost consumer spending in the housing and auto sectors.

The Direct Impact on Your Home Loan

For borrowers with a floating rate home loan linked to an external benchmark (EBLR/RLLR), the transmission should be swift. Banks are mandated to reset these rates at least once every three months.

Estimated Savings on a ₹50 Lakh Loan

If your current interest rate drops by the full 0.25% (e.g., from 8.50% to 8.25%) on a 20-year loan:

• Old EMI: ₹43,391
• New EMI: ₹42,603
• Monthly Savings: ₹788
• Total Savings over 20 Years: Approx ₹1.9 Lakhs

Smart Move: The 'Interest Crusher' Strategy

Most borrowers will happily accept the lower EMI and spend the extra ₹788.

Don't do that. Instead, ask your bank to keep your EMI the same despite the rate cut.

By maintaining your old EMI of ₹43,391 at the new lower interest rate of 8.25%, you are effectively making a small prepayment every month. This simple step can shave off over 1 year from your loan tenure without any change to your monthly budget.

Action Plan for Borrowers

1. Check Your Reset Date: External benchmark loans have specific reset dates (e.g., Jan 1st). Mark your calendar.
2. Compare the Spread: Ensure your bank hasn't sneakily increased the 'spread' while the repo rate fell.
3. Legacy Borrowers (MCLR/Base Rate): If you are still on an old MCLR regime, the gap between your rate and the market rate has likely widened. This involves a conversion fee, but the long-term savings of switching to a Repo-Linked Loan are now undeniable.