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Journalism of Courage
The Reserve Bank of India kept the repo rate unchanged at 5.5 per cent in its October 2025 policy review. This is the second consecutive meeting where the central bank has maintained the rate. Home loan rates have been trending lower ever since the RBI reduced the repo rate to 5.5 per cent. When interest rates fall, home loans become more attractive. A lower rate means a lower EMI and lower interest paid over the loan tenure.
However, a low-rate phase is not a signal to rush into a home loan. It gives you the space to plan better, because a home loan is a long-term commitment that stays steady across interest rate cycles. A small change in percentage points can save or cost lakhs over a 20- year tenure. Before signing the loan agreement, borrowers must understand the fine print, assess their financial readiness, and make choices that protect their long-term security.
The rate offered to you depends heavily on your credit score. Banks typically offer their best rates to borrowers with scores above 750. Even a small difference can matter. Suppose your bank charges 8.30% for a score of 760 but 8.70% for a score of 680. On a loan of Rs.50 lakh for 20 years, this 0.40% gap means paying roughly Rs.3.03 lakh more in interest. Checking your score early gives you time to correct errors or reduce credit card balances. A cleaner report strengthens your bargaining power and can bring your EMI down without negotiation.
Most home loans today are linked to the RBI repo rate. When the repo rate falls, lenders adjust loan rates, often with a short lag. But the reset cycle differs across banks. Some revise rates monthly, while others do so quarterly. If your loan resets quarterly and rates fall today, the benefit may reflect only after three months.
A long tenure keeps EMIs comfortable but increases the total interest significantly. A 20-year tenure on a loan of Rs.40 lakh at 8.30 per cent leads to total interest of about Rs.42 lakh. Shorten it to 15 years and the interest falls to roughly Rs.30 lakh, a saving of Rs.14 lakh. If your cash flows allow, choose a shorter tenure at the start. Alternatively, pick a longer tenure for safety and prepay whenever you receive a bonus or refund. Even one extra EMI a year can shorten a 20-year loan by nearly two years.
Two banks may quote the same rate but differ sharply in charges. Processing fees, legal vetting fees, administrative charges, early closure terms, and insurance bundling can add Rs.20,000 to Rs.50,000 to your cost. Always calculate the full cost of the loan over at least five years. A simple spreadsheet can prevent expensive mistakes.
It is generally advised to keep EMIs within 30-35% of your income. This leaves room for savings, goals, and emergencies. If a lower rate qualifies you for a higher loan amount, pause and reassess rather than upgrading to a costlier property. Borrowing within your comfort zone keeps you secure when rates rise again or when income is disrupted, both of which are more common than we assume.
Low interest rates are helpful, but they are not the only factor that makes a home loan affordable. A prudent borrower looks at credit score, tenure, total cost, and long-term resilience.
The writer is the CEO of BankBazaar.com
