How the Recent Repo Rate Drop Benefits Kotak Home Loan Borrowers

Introduction

The Reserve Bank of India cut the repo rate by 50 basis points to 5.5% on June 6, 2025—the third consecutive rate reduction this year. 

For home loan borrowers, this typically signals lower EMIs and reduced interest costs. However, the actual impact depends on the loan type and your bank's rate transmission process.

For Kotak home loan customers, this repo rate cut could mean lower EMIs or reduced interest costs, depending on whether your loan is linked to a floating or fixed rate—helping you save more or pay off your loan faster.

This guide explains how repo rate changes translate into real impacts on your home loan—helping you navigate the connection between monetary policy and your monthly EMI payments.

What Does the June 2025 Repo Rate Cut Mean for Your Loan?

The June 2025 repo rate cut reduced the RBI's key policy rate from 6% to 5.5%. This represents a cumulative reduction of 100 basis points since the beginning of 2025, when the repo rate stood at 6.5%.

When the repo rate falls, banks typically reduce their lending rates—but the transmission isn't automatic or immediate for all borrowers.

The impact on your Kotak home loan depends on whether your loan is linked to an external benchmark (like the repo rate) or an internal benchmark like MCLR (Marginal cost of fund-based lending rate).

For Kotak home loan borrowers, this translates into a rate drop from 8.75% to 7.99% per annum.

However, this doesn't mean all existing borrowers will automatically see this new rate—your loan agreement determines how and when rate changes apply to your account.

Will Your Kotak Home Loan EMI Decrease Automatically?

Whether your EMI decreases automatically depends on your loan type:

Repo-linked Loans (RLLR/EBLR): If your loan is linked to the repo rate, changes typically reflect within 1-3 billing cycles. Your loan agreement specifies the reset frequency—usually quarterly. The impact of repo rate change on home loan EMIs is more direct and faster for these loans.

MCLR-linked Loans: These loans adjust based on Kotak's MCLR (Marginal cost of fund-based lending rate), which factors in the bank's deposit rates, operational costs, and profit margins. MCLR rates are reviewed monthly but don't always change immediately following repo rate cuts.

Fixed-rate Loans: These remain unaffected by repo rate changes until the fixed-rate period ends.

According to banking industry data, approximately 60% of home loans are now linked to external benchmarks, making rate transmission faster than in previous years. 

Most banks, including Kotak, send notifications before implementing EMI changes. Ensure your contact details are updated to receive these alerts.

How to Check Your Loan Type

Your loan agreement clearly states whether your interest rate is linked to RLLR, MCLR, or is fixed. You can also:

• Check your loan statement for terms like "RLLR" or "External Benchmark."
• Log into Kotak net banking and review your loan details.
• Contact customer service for clarification.

How Much Can You Save with Lower Rates?

The reduction from 8.75% to 7.99% creates substantial savings for eligible borrowers. Here's what the numbers look like:

For a ₹50 lakh loan over 20 years:

• Previous EMI at 8.75%: ₹44,729
• New EMI at 7.99%: ₹41,796
• Monthly saving: ₹2,933
• Total interest saving over loan tenure: ₹7.03 lakh

For a ₹75 lakh loan over 20 years:

• Previous EMI at 8.75%: ₹67,094
• New EMI at 7.99%: ₹62,694
• Monthly saving: ₹4,400
• Total interest saving over loan tenure: ₹10.55 lakh

These calculations assume you're eligible for the new rate structure. Actual savings depend on your specific loan terms and when the rate change applies to your account.

Should You Switch from Fixed to Floating Rate Now?

Current economic conditions favour floating rates, but switching involves costs and considerations:

When to Consider Switching:

• Your fixed rate is significantly higher than current floating rates
• You have more than 5 years remaining on your loan
• Switching costs are minimal compared to potential savings

Factors to Evaluate:

• Processing fees for rate conversion
• Legal and administrative charges
• Break-even period calculation
• Future rate outlook

Use online calculators to determine whether switching is financially beneficial in your case. The decision should be based on numbers, not just the current rate environment.

What If Repo Rates Rise Again in Future?

The RBI has adopted a "neutral" monetary policy stance, suggesting future rate changes will be data-dependent rather than aggressive. However, economic conditions can change:

Rate Cycle Considerations:

• Repo rates tend to move in cycles lasting several years.
• The current accommodative phase may continue if inflation remains controlled.
• Global economic factors also influence domestic monetary policy.

Protection Strategies:

• Consider partial prepayments during low-rate periods.
• Maintain emergency funds to handle potential EMI increases.
• Monitor economic indicators that influence rate decisions.

Historical data shows that starting from a lower rate base provides cushion against future increases, even if rates rise moderately.

Note: Understanding Rate Transmission Delays

Banks don't adjust rates immediately after RBI announcements. Repo-linked loans can take 1-3 months to reflect rate changes, while MCLR-linked loans may take even longer. This delay occurs as banks reassess their overall cost of funds and adjust their lending strategies accordingly.

Conclusion

The repo rate cut 2025 creates opportunities for significant savings, but the actual impact depends on your loan structure and timing. 

Kotak's rate reduction from 8.75% to 7.99% benefits eligible borrowers substantially, though not everyone will see immediate changes.

Review your loan type, understand the timeline for adjustments, and consider your options if you're not seeing expected benefits. 

The current low-rate environment may be temporary, so it’s important to maximise savings while rates remain favourable.

Monitor your loan statements, stay informed about policy changes, and don't hesitate to contact your lender if rate adjustments don't appear as expected.