The year 2025 has turned out to be a favorable one for home loan borrowers. After nearly five years, the Reserve Bank of India (RBI) began cutting interest rates, offering significant relief to people planning to buy homes or already servicing housing loans. As a result, the repo rate has dropped sharply from 6.5% at the start of the year to 5.25%, prompting banks to reduce home loan interest rates.

This development has sparked a common dilemma among prospective buyers: Is it better to take a home loan now, or should one wait until next year in the hope of even lower interest rates? Here’s a detailed look at how repo rate cuts affect home loans and what borrowers should consider before making a decision.

In 2019, banks linked floating-rate retail loans, including home loans, to an external benchmark. Most banks chose the repo rate as this benchmark. Because of this system, any change in the repo rate has a direct and quicker impact on loan interest rates.

When the RBI reduces the repo rate, banks lower their lending rates, making loans cheaper for customers. Conversely, when the repo rate rises, loan interest rates increase. This linkage has ensured greater transparency and faster transmission of monetary policy benefits to borrowers.

The RBI began its rate-cut cycle in February 2025, reducing the repo rate by 0.25%, bringing it down from 6.5% to 6.25%. Another cut of 0.25% followed in April, taking the rate to 6%. In June, the central bank announced a sharper cut of 0.50%, lowering the repo rate to 5.5%. Most recently, in early December, the RBI reduced the rate by another 0.25%, bringing it to the current level of 5.25%.

In total, the repo rate has been cut by 1.25 percentage points this year, significantly reducing borrowing costs.

Due to these reductions, several leading banks—including State Bank of India, HDFC Bank, ICICI Bank, Bank of Baroda, Bank of India, and Canara Bank—are now offering home loans starting in the range of 7.1% to 7.9%, depending on borrower profile and credit score.

Lower interest rates have benefited both new borrowers, who can avail loans at cheaper rates, and existing borrowers, whose EMIs or loan tenures have been reduced automatically under floating-rate structures.

Consider an example: If you took a ₹50 lakh home loan in January 2025 for 20 years at an interest rate of 8.5%, the cumulative repo rate cut of 1.25% would have delivered substantial savings.

If the benefit is adjusted by reducing the loan tenure, the tenure may come down to around 198 months, resulting in interest savings of nearly ₹18.32 lakh over the loan period. If, instead, you opt for a lower EMI, the savings would still be significant—around ₹9.29 lakh in interest.

Some economists believe that the rate cut cycle may not be over yet. There is speculation that the RBI could reduce the repo rate by another 0.25% in February 2026, depending on inflation trends and economic conditions.

According to Siddharth Sanyal, Chief Economist at Bandhan Bank, inflation is expected to hover around 3% over the next 12 months. He notes that the current real interest rate remains higher than the RBI’s estimated neutral real rate of 1.4% to 1.9%, suggesting that there may still be room for further rate cuts.

If this happens, home loan borrowers could see slightly lower interest rates next year.

If you are planning to buy a home soon and have finalized the property, waiting solely for a marginal rate cut may not always be practical. Current rates are already near multi-year lows, and any further reduction may be limited.

Moreover, most home loans today are floating-rate loans, meaning that even if you take a loan now, you will automatically benefit from future rate cuts without refinancing.

However, if your purchase plans are flexible and you are not in a hurry, waiting for a few months could potentially fetch a slightly lower rate.

Home loan rates in 2025 have already become significantly more affordable due to RBI’s aggressive rate cuts. While there is a possibility of further reductions in 2026, the current interest rate environment is attractive for borrowers. Instead of timing the market perfectly, borrowers should focus on affordability, stable income, and long-term financial planning.

In most cases, taking a home loan now does not mean missing out—future rate cuts, if any, will still benefit you automatically under floating-rate structures.