Home loans will get cheaper and the real estate sector could get a lift as the Reserve Bank of India (RBI) on Friday cut key benchmark interest rate by 25 basis points and promised to inject $16 billion liquidity to support credit growth, industry experts said.

The interest rate on home loans could drop to the low-7% range and spur buying demand. “Home loan rates, which had climbed above 9% early last year, are now already below 7.5%. With this cut, we expect rates to move closer to the 7-7.25% range, an attractive window for homebuyers,” said Ashtech Group director Sumit Agarwal.

The RBI has reduced repo rate by 125 basis points this year to bring it down to 5.25%, generating strong credit growth in the retail sector as banks have brought down their lending rates. The home loan portfolio is the largest in the retail credit segment.

Corporate loans have seen sluggish growth but bankers expect the segment to pick up during the remaining period of the current financial year.

"Home loan borrowers will see modest but meaningful relief as lending rates adjust. The cumulative 125 basis point reduction this year has already eased EMIs, and for a Rs 50 lakh loan over 20 years the fall in rates can reduce lifetime interest outgo by about Rs 9 lakh," said BankBazaar.com CEO and co-founder Adhil Shetty.

According to ArisUnitern RE Solutions director Navin Dhanuka, the rate cut has come at a crucial moment for the industry. “Lower home-loan EMIs (equated monthly instalments) will materially improve affordability and boost homebuyer confidence, especially in the mid-income and aspirational segments. This policy shift strengthens project viability, accelerates on-ground execution and is likely to spur fresh supply as demand gains momentum, supporting broader growth across the real-estate sector,” he said.

The rate cut improves overall loan affordability while inflation continues to be low and India’s 8.2% GDP growth in the July-September quarter is the highest in 18 months.

“This could spur demand across urban and middle-income housing segments, giving a welcome lift to the real estate market,” said Sarvam Properties co-founder Manan Joshi.

Lower home loan rates can induce buying. According to Anarock Group chairman Anuj Puri, the rate cut is a distinctive positive for the real estate sector. “Coming on the back of earlier easing cycles this year, this move further sweetens the value proposition for homebuyers, particularly in the affordable and mid-income segments which are highly sensitive to interest rate fluctuations. If banks swiftly pass on this rate cut to borrowers, we anticipate a renewed surge in sales velocity carrying firmly into Q1 2026," he said.

Home loans with floating rates of interest, particularly those linked to external benchmark lending rate (EBLR), will reap the benefits faster. Most home loans are floating rate loans, linked to the repo rate.

For borrowers who are under marginal cost of funds-based lending rate (MCLR), the base rate or benchmark prime lending rate (BPLR), the interest rate will be higher than those under the EBLR regime. As the reset period will be longer, switching to the EBLR-based regime will provide quicker benefit of interest rate reduction in a monetary easing cycle.

Borrowers should also consider shrinking their home loan tenures rather than lowering their EMIs. "Existing borrowers can enhance savings by holding EMIs steady and shortening tenure, which helps bring long-term liabilities under better control," said Shetty.

Interest rates on auto, personal and business loans are also set to drop and demand is expected to rise on the back of GST (goods and services tax) rate rationalisation, festive season and improvement in supply conditions.