Repo Rate At 5.5%: Will Home Loan Interest Rates Fall Amid Diwali Cheers? What Will Happen To Your EMIs?

The Reserve Bank of India keeps the repo rate unchanged for the second consecutive policy at 5.5%. The rate decision is a welcome move, although the real estate sector still mulled over a surprise 25 bps rate cut. Nevertheless, a pause in key policy rates is pivotal for home buyers who are looking to invest in housing amidst Diwali cheer. Repo rate is directly linked to banks' home loan interest rates.

"RBI's decision to keep the repo rate unchanged at 5.5% maintains home loan EMIs at current levels, which helps sustain buyer sentiment but does not improve housing affordability," said Anuj Puri, Chairman of ANAROCK Group, to GoodReturns.

Repo Rate-Home Loan Rates Relation:

In general terms, the repo rate is the interest rate that banks pay after borrowing funds from RBI. A similar pattern is how salaried individual borrowers pay interest along with the principal amount on their home loans from banks.

All Indian scheduled banks have linked their term loan rates to the repo rate, which acts as an external benchmark. Meaning, your home loan rates cannot fall below this benchmark.

If RBI cuts the repo rate, the home loan EMIs tend to get cheaper. The situation is reversed if RBI hikes rates.

But what about when RBI keeps the repo rate unchanged?

Decoding further, Puri explained the status will mean existing home loan borrowers won't see any immediate EMI changes, while new borrowers will find loan interest rates holding steady.

Additionally, Pramod Kathuria, Founder & CEO of Easiloan, said," For home lending applicants, a stable interest rate scenario gives clarity to borrowing costs, which forms the basis of efficient financial planning. Additionally, this shows that the RBI's cautious approach will help enable continuous credit flows without fanning the inflationary trend."

Data from ANAROCK revealed Q3 2025 residential sales in India's top 7 cities dropped 9% year-on-year to 97,080 units, yet overall sales value jumped 14% to INR 1.52 lakh crore, indicating demand shifted towards premium and mid-segment homes.

While immediate change in home loan rates looks bleak, experts still believe home loan EMIs could fall in October.

Home Loan Rates To Fall?

According to Sanjay Agarwal, Senior Director, CareEdge Ratings, RBI has announced a series of regulatory changes, among which some significantly alter the framework that governs how interest rates on loans are determined and adjusted. These changes are expected to enhance the efficiency of monetary policy transmission, meaning that when the RBI reduces its benchmark interest rates, banks and financial institutions can pass on these benefits to borrowers more quickly. As a result, borrowers could experience lower EMIs or reduced overall interest payments on their loans.

Explaining the benefits of lower home loan rates, Agarwal said, "This would not only ease the financial burden on individuals and businesses but also make credit more accessible across sectors. By adjusting lending rates in response to policy rate changes, the RBI aims to stimulate economic activity, encourage borrowing, and foster growth. Meanwhile, borrowers will need to closely monitor repo rate decisions, as future RBI rate actions will now impact EMIs more quickly. Additionally, while RBI has allowed flexibility, individual banks may implement these changes differently. Borrowers should check with their lenders about spread revisions and fixed-rate options."

RBI trimmed the repo rate by a whopping 100 basis points from the February to June 2025 policies. As per RBI's monetary policy data on October 1, the transmission of this cut has been quick in both bank deposits and lending rates.

Due to the 100 basis point cut, banks have adjusted their repo-linked lending rates downward by 100 bps from February to June. Meanwhile, the marginal cost of the funds-based lending rate, which has a longer reset period, declined significantly. Also, the 1-year median marginal cost of funds-based lending rate of scheduled commercial banks softened by 40 bps during February-August 2025.

Consequently, the weighted average lending rates on fresh and outstanding rupee loans declined by 58 bps (interest rate effect accounts for 71 bps) and 55 bps, respectively, during the same period. In the case of deposits, the weighted average domestic term deposit rates on fresh and outstanding deposits declined by 106 bps and 22 bps, respectively.

Also, the share of external benchmark-based lending rate-linked loans in total outstanding floating rate loans of scheduled commercial banks increased to 62.9% by end of June 2025, compared to 61.6% as of March 31, 2025. In the contrast, the share of marginal cost of funds-based lending rates linked loans declined. This means that the adoption of external benchmark-linked lending rates has quickened.

So a status quo is still good news for home loan borrowers, but a decline in home loan rates during Diwali cheers would be the icing on the cake.

"In housing, lower home loan rates alongside the festive season are driving a visible pickup in demand. While another cut would have added momentum, the case for further easing toward year-end remains strong," said Piyush Bothra, Co-Founder & CFO, Square Yards.

Hence, Vimal Nadar, National Director and Head of Research, Colliers India, highlighted that banks are yet to fully transmit the earlier 100 basis points repo rate reduction and are expected to complete it soon in the ongoing festive season. This is expected to benefit the real estate sector, especially homebuyers in the affordable and mid-income segments. Additionally, the recent GST rationalization in key construction materials such as cement can allow room for developers to lower prices and offer lucrative deals to push housing sales.

"Overall, timely GST rationalization, stable financing costs and festive discounts augur well for real estate, especially housing, warehousing, retail and hospitality demand," said Nadar lastly.