The Reserve Bank of India’s Monetary Policy Committee lowered the repo rate by 25 basis points to 5.25% in December 2025. This latest reduction, following earlier cuts during the year, came after inflation showed signs of stabilising and economic activity needed support. Soon after the policy announcement, several major lenders reduced their lending rates and updated benchmarks such as MCLR, RLLR and RBLR. These developments create a good opportunity for borrowers to rethink how their existing home loans are structured in order to save interest or gain better financial flexibility.
A rate cut usually benefits floating-rate borrowers first because banks revise their lending benchmarks soon after the policy decision. Many large lenders, including those in the public and private sector, announced reductions in their home loan rates once the repo rate moved to 5.25%. This environment makes it useful for borrowers who are still paying fixed interest or older, higher floating rates to consider switching to the lender’s updated benchmark.
A floating-rate loan linked to the repo rate or a revised internal benchmark often becomes cheaper immediately after the bank lowers its lending rates. This can reduce long-term interest costs, especially when the remaining tenure is long. However, switching involves factors such as conversion fees, the margin added over the benchmark and the frequency at which the rate resets. A careful comparison of the new terms helps identify whether the potential savings justify the cost of conversion.
When lenders reduce rates following an RBI cut, the home loan gets re-amortised. This typically gives two choices: either reduce the monthly EMI while keeping the existing tenure, or keep the EMI unchanged and shorten the tenure.
Lowering the EMI improves monthly cash flow, which can be helpful for households managing other expenses. On the other hand, keeping the EMI constant but reducing the tenure leads to much larger savings in total interest paid over the life of the loan. In most cases, reducing the tenure is financially superior because it directly cuts the number of months for which interest is charged. Lenders usually provide an updated amortisation schedule, which shows how the loan will progress under the new rate. Reviewing this schedule makes it easier to decide which option aligns better with long-term financial goals.
A home loan balance transfer becomes especially attractive in a falling rate environment. After the repo rate moved to 5.25%, competition among banks increased, and several lenders started offering home loan rates in the lower range of the market to attract new customers. This difference between the current lender’s rate and what other lenders offer can create meaningful savings.
Refinancing works best when the remaining tenure is long and the difference between rates is significant. However, the decision must consider processing fees, documentation charges and any foreclosure rules of the existing lender. A proper cost-versus-savings calculation is important because the transfer involves fresh documentation and time. When the net savings over the remaining tenure are higher than the switching cost, refinancing becomes a practical restructuring strategy.
Part-prepayment is one of the simplest and most effective ways to reduce interest outgo, especially after a rate cut. When the principal amount reduces, interest is calculated on a smaller outstanding balance, which speeds up the loan closure. Many borrowers use annual bonuses, incentives or other one-time funds to make such payments.
Prepayment becomes more attractive when interest rates fall, because the adjusted EMIs or tenure calculations make the overall repayment more efficient. However, prepayment should not compromise liquidity. Some borrowers adopt a mixed approach: making one or two lump-sum prepayments during the year and then requesting the lender to shorten the tenure. Several banks have recently made their prepayment rules more flexible after adjusting lending rates, though the exact terms differ across institutions. Reviewing these terms in advance is important to avoid penalties or misunderstandings.
Hybrid home loans allow part of the loan to be fixed and the remaining portion to be floating. This structure provides stability as well as the benefit of potential rate cuts. After the latest rate reduction, hybrid structures became more appealing for borrowers who want some protection against future rate hikes while still enjoying lower floating rates today.
Another option is to divide the outstanding loan across more than one lender, which is sometimes allowed depending on lender policies. This approach helps lock in lower rates with a lender offering the best terms while retaining existing advantages from the original lender. These strategies work well when the future direction of interest rates is uncertain. Running a comparison of cash flow projections under different rate conditions helps determine whether the hybrid approach will offer true long-term benefits.
The RBI’s decision to cut the repo rate to 5.25% has already pushed lenders to revise loan pricing. This has opened a window for borrowers to restructure home loans in ways that reduce interest costs or improve financial comfort. However, restructuring decisions must be based on clear calculations, written confirmations from lenders and realistic assessments of liquidity.
Since banks update rates at different speeds and margins vary across lenders, staying updated with new rate lists and revised loan terms is essential. A well-planned restructuring step taken during a rate-cut cycle can lead to significant savings over the life of a home loan.