RBI rate cut: Should you buy a house now? Lock in lower rates if the deal is right, but avoid stretching your budget beyond 4–5 times your annual income
The Reserve Bank of India (RBI) on December 4 cut the repo rate by 25 bps to 5.25%. Following earlier rate reductions this year, the move further strengthens the value proposition for homebuyers, especially in the affordable and mid-income segments that are highly sensitive to interest rate changes. First-time and mid-income buyers stand to benefit the most, with potential reductions in monthly EMIs. However, prospective buyers should ensure their finances are in order and assess income stability before committing to a purchase.
Should you buy a house now?
If you are planning to buy a home, is this a good time? A 25-basis-point cut by the RBI does make buying a house more attractive for people already planning for it.
“Over the next few weeks, banks are expected to pass on these cuts to borrowers through lower home loan interest rates,” says Abhishek Kumar, founder of SahajMoney, a low-cost fixed-fee advisory platform.
“This would particularly benefit first-time and mid-income buyers whose monthly payments could decrease significantly,” he said.
However, those planning to purchase a property should do so only if their finances are in order. Job or income stability is a key thing to consider. “You need to have your basics right, like having at least six months of emergency funds, and also ensure that your total EMI does not cross 40% of your income,” he said.
“Lock in these favourable interest rates now if you've found a property at acceptable terms, but avoid stretching your budget beyond 4 to 5 times your annual income,” says Kumar.
Disciplined financial planning is thus important. Base your decision on financial realities and not short-term sentiments.
“With property prices rising faster than rate adjustments in many metro and Tier-2 markets, buyers should plan conservatively and treat the cut as a tailwind, not the basis for financial overreach,” says Adhil Shetty, CEO and co-founder, BankBazaar.com.
What should existing home loan borrowers do?
Should existing home loan borrowers pay a reduced EMI or shorten their loan tenure? “A 25-bps rate cut is positive, but borrowers must use it strategically. For existing borrowers, keeping EMIs unchanged and allowing tenure to shorten remains the stronger wealth-saving move, as more EMI shifts toward principal and meaningfully reduces lifetime interest,” says Ashish Narain Agarwal, founder and MD, PropertyPistol.If we look at the 1.25% reduction in repo rates since last year, using the ₹50-lakh loan example, maintaining EMI after the rate drop from 8.5% to 7.5% cuts the tenure by 36 months and saves ₹15.4 lakh in interest. In comparison, reducing EMI only saves ₹7.46 lakh. Unless cash-flow pressure is a concern, tenure reduction is the far more efficient choice,” says Shetty.
Should you refinance?
Banks typically transmit rate cuts during the next interest rate reset cycle, which usually occurs within 30–60 days. “Borrowers may consider refinancing only if the new lender offers a rate that is at least 50–75 basis points lower, and if the outstanding loan amount and remaining tenure justify the switch,” says Raoul Kapoor, Co CEO, Andromeda Sales and Distribution. It’s crucial to weigh the savings against the cost of refinancing.
Should you prepay your home loan?
The decision varies based on personal financial goals and liquidity needs. If a borrower has near-term obligations or requires funds for other commitments, it is better to avoid prepayment, especially since home loans are among the lowest-cost loans available.
“Prepay only if there is no immediate need for the surplus and if no alternative investment can offer better risk-adjusted returns,” says Kapoor.
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