Home Loan in New Year: 2025 brought big relief for borrowers, will home loans further fall in their EMIs with more interest rate cuts in 2026?

Repo rate-linked home loan borrowers had a gala time in 2025 as the Reserve Bank of India (RBI) cut the repo rate by 125 bps in the year. For other borrowers also with their floating rate home loans under EBLR (non repo rate), MCLR, base rate and BPLR, EMIs dropped significantly.

For new borrowers, who were sitting on fences the year 2025 offered an opportunity to buy their dream homes at much affordable EMIs which kept falling through the year.

As the year closes and the year 2026 is about to begin, will the party continue for home loan borrowers, or, will there be no cuts in home loans? How best existing and new home loan borrowers can manage their loans in a low-interest scenario? Get answers to many such questions!

RBI repo cuts in year 2025

Month & year	Repo rate %	Cut by (base points)
Feb-25	6.25	25
Apr-25	6	25
Jun-25	5.5	50
Dec-25	5.25	25
Total		125

Home loan rates of key public and private banks

Name of Lender	Loan Amount (Rs)
	Upto 30 Lakh	Above 30 Lakh & Upto 75 Lakh	Above 75 Lakh
PUBLIC SECTOR BANKS
State Bank of India	7.25-8.70	7.25-8.70	7.25-8.70
Bank of Baroda	7.45-9.25	7.45-9.25	7.45-9.50
Punjab National Bank	7.25-9.10	7.20-9.00	7.20-9.00
Bank of India	7.10-10.00	7.10-10.00	7.10-10.25
Indian Bank	7.15-9.55	7.15-9.55	7.15-9.55
Central Bank of India	7.10-9.15	7.10-9.15	7.10-9.15
PRIVATE SECTOR BANKS
Kotak Mahindra Bank	7.70 onwards	7.70 onwards	7.70 onwards
ICICI Bank	7.65 onwards	7.65 onwards	7.65 onwards
Axis Bank	8.35-11.90	8.35-11.90	8.35-9.35
HSBC Bank	7.70 onwards	7.70 onwards	7.70 onwards
Bandhan Bank	8.41-12.58	8.41-12.58	8.41-12.58
HDFC Bank	7.90 onwards	7.90 onwards	7.90 onwards
City Union Bank	8.25-9.50	8.50-10.00	8.75-10.50
Source: Paisabazaar.com

Has the RBI’s rate-cut cycle effectively ended in 2025, or is there still room for easing in 2026?

Whenever the RBI cuts the repo rate, lenders also slash home loan interest rates of floating rate loans. The rate cut transition is faster in loans linked to External Benchmark Lending Rate (EBLR) especially Repo Linked Lending Rate (RLLR), while it is slower in loans linked to Marginal Cost of Funds Based Lending Rate (MCLR) and other old floating interest rate regimes like base rate and BPLR. Due to overall interest rate fall in 2025, borrowers of all these floating interest rate regimes benefited. Will there be further reduction in overall interest rate in 2026 and will the RBI continue its repo rate cut spree in 2026?

Swapnil Aggarwal, Director, VSRK Capital, says with inflation relatively under control, the central bank may adopt a pause-and-watch approach rather than pursue aggressive easing.

“While there could still be limited room for a marginal cut in 2026 if macroeconomic conditions permit, the scope for further reductions remains constrained, and any easing is likely to be cautious and data-driven rather than front-loaded,” says Aggarwal.

Kapil Maurya, Executive Director, Urban Money, too believes that RBI cuts in 2025 indicated that the core easing cycle is largely complete, but he does not rule out more cuts in the future.

“With global trade slowing and growth risks persisting across key economies, there is still limited room for further easing in 2026. If inflation stays comfortably within the RBI’s target band and external pressures remain muted, the central bank could consider a modest cut, possibly around 25 basis points,” says Maurya.

What it means is that the chances of substantial rate cut in 2026 appears to be less however the possibility of a minor rate cut like another 25 basis points cannot be ruled out.

Have banks fully passed on the benefit of falling interest rate to home loan borrowers in 2025?

Atul Monga, CEO& co-founder, BASIC Home Loan, says that not all banks have fully passed on the 2025 repo rate cuts yet.

“While large lenders like SBI and PNB have reduced their benchmark lending rates, transmission across the segment largely remains uneven,” says Monga.

Maurya says that repo-linked loans have seen faster transmission, whereas some borrowers are yet to receive the full benefit. Banks are mandated by RBI to pass on the changes in external benchmark to home loan borrowers under EBLR regime within 3 months. So, effectively most of banks have passed on the benefit past repo rate reductions of 100 basis points to home loan borrowers under RLLR. Only the latest repo rate cut of 25 basis points in December 2025 will take some time to be transmitted to the respective borrowers. However, the story is different for borrowers still under older interest rate regimes.

“Banks’ cost of funds, deposit rates and liquidity conditions continue to influence how quickly rates are revised. As these factors normalise and competition intensifies, there is scope for further reduction in effective home loan rates in 2026,” says Maurya. What it means that the interest rate fall is yet to be fully transmitted to many home loan borrowers.

Can home loan rates fall further in the year 2026?

Maurya believes more declines in home loan rates may be possible in the new year, but such cuts are likely to be gradual and limited.

“Much will depend on additional policy action and how effectively banks transmit any further cuts. For new home loan borrowers, the current environment is relatively favourable from a long-term borrowing perspective,” says Maurya.

Aggarwal too feels the scope for further home loan reductions appears to be limited. “Any additional rate cuts by the RBI are likely to be data-dependent, hinging on factors such as inflation trends, economic growth momentum, and global monetary conditions,” opines Aggarwal.

If the RBI cuts the repo rate by 25 basis points in its next momentary policy meeting in early February and banks also cut the home loan rate by the same margin, on a Rs 50 lakh loan at 8% rate for 20 years, the bank will save approximately Rs 722 every month.

As per experts, many borrowers, who have taken loans from NBFCs or whose bank loans are linked to older interest rate regimes, are yet to receive the full benefits of interest rate fall. The borrowers with home loans under MCLR, base rate and BPLR are likely to see further reduction in their home loan interest rates even if there is no further rate cut by RBI in 2026. Same is likely to happen with borrowers who have taken home loans from NBFCs who did not pass on full interest rate reduction benefit in 2025.

Should new home loan borrowers wait for the rate cut?

Monga advises new or first-time borrowers should avoid delaying their home loan decisions in anticipation of additional rate cuts.

Monga believes that with home loan rates at attractive levels, it makes sense for borrowers to consider going ahead with the purchase and opt for a repo-linked loan.

Aggarwal seconds Monga’s thoughts, saying borrowers can opt for repo-linked floating rate home loans, which allow them to automatically benefit from any future reduction in interest rates while meeting their current housing requirements.

After the RBI’s repo rate cut, lenders slash interest rates of repo rate-linked loans, but the equated monthly instalment (EMI) for fixed EMI loan remains the same. So, logically it seems ideal to shift from fixed EMI loan to linked loan. But there is other side to it, if the RBI starts increasing repo rate and the banks also follow the path, interest rate of linked loans can also rise. Considering the pros and cons of shifting to the rate-linked loan, what should the existing home loan borrowers do?

Should existing home loan borrowers shift to repo rate-linked loans to make most of the current rates?

Maurya suggests for existing borrowers, shifting to a repo-linked structure may help capture the benefits of current and future rate movements more efficiently.

However, Maurya advises that the decision should be based on a clear cost-benefit analysis.

“Factors such as conversion fees, interest rate spread, remaining tenure and expected long-term savings need to be carefully assessed. In some cases, the switch can result in meaningful interest savings, while in others the benefits may be marginal,” says Maurya.

Monga too says that borrowers who are still on the older, non-repo linked loan should consider shifting to a repo-linked home loan if the numbers make a solid case.

Monga opines that if the effective rate drops meaningfully, a balance transfer can be a smart move to improve savings and ensure quicker transmission in the current cycle.