How Interest Rate Changes Are Impacting Homebuyers?

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Buying a home takes years of preparation. Applying for a home loan is undoubtedly one of the biggest parts of this preparation. The home loan market in India was valued at USD 329.88 billion in 2024. This market is growing with more people aspiring to buy a home once in their lifetime. But interest rates and the housing market 2025 play a crucial role here.

 

With interest rates fluctuating in response to RBI policies, people often find themselves waiting for the right time to apply for a loan. The interest rate impact on homebuyers can be determined by analyzing market trends and buying patterns of customers.

Why do interest rates fluctuate?

 

Interest rates fluctuate primarily due to the RBI policies. RBI repo rates directly influence your interest rate. The repo rate is the rate at which the RBI lends money to banks. A higher repo rate naturally results in a higher interest rate for borrowers. A lower repo rate benefits borrowers as they can avail loan at lower interest rates.

How do interest rate fluctuations affect homebuyers?

 

Interest rate fluctuations bring several consequences for homebuyers. Aspiring buyers postpone their decision to buy a home, fearing higher interest rates. Buyers who have already applied for a loan will have to pay more money in Equated Monthly Instalments (EMIs). Your EMI can increase drastically even if there is a slight increase in interest rates. Let’s look at the interest rate impact on homebuyers in detail.

 

  1. Big impact on EMIs

 

The amount you will pay as EMI will vary depending on the interest rate. For example, if you apply for a home loan of ₹45,00,000 at an interest rate of 8.5% for 25 years, your EMI would add up to ₹36,235. If the interest rate increases to 9.2%, the EMI would be ₹38,382. That’s an increase of more than ₹2000 EMI per month. This is why it’s crucial for homebuyers to assess interest rates carefully and plan finances well.

 

  1. Low repo rates boost buyer sentiment

 

The Reserve Bank of India recently announced a 50 basis point reduction in the repo rate, bringing it down to 5.5%. Low repo rates boost buyer sentiment, and the interest rate impact on homebuyers is positive as the borrowing cost reduces significantly.

 

  1. Developers introduce attractive plans

 

Higher interest rates, too, sometimes benefit buyers in many ways. Even when the loan interest rates were high, real estate developers resorted to several tactics to entice buyers of affordable housing. They introduced flexible payment plans, premium gifts for the first few bookings, a lucky draw, and attractive discounts to motivate buyers to book homes. This encouraged many buyers to come forward even when interest rates were a bit high. Innovative schemes and flexible plans help buyers fulfil their wish of buying a home at a time when interest rates are not favourable.

Revised tax rates

 

In case you are wondering about the current interest rates, here’s a list of banks and their respective interest rates.

 

Union Bank of India - 7.35% onwards

 

Bank of Maharashtra - 7.35% onwards

 

Punjab National Bank - 7.50% onwards

 

Bank of Baroda - 7.50% onwards

 

Central Bank of India - 7.85% onwards

 

Canara Bank - 7.90% onwards

 

State Bank of India - 8.00% onwards

 

HDFC Bank -  8.45% onwards

 

ICICI Bank - 8.50% onwards

 

Karnataka Bank - 8.72% onwards

 

What should first-time homebuyers know?

 

If you are a first-time homebuyer, you need to know a few things apart from the interest impact on homebuyers. Here are a few things to keep in mind before you take the plunge.

 

     Know your income and expenses well. Do not apply for a loan if your home loan EMI eats up more than half of your monthly income. Interest rates may increase in the future, and you may be expected to make adjustments to your budget to accommodate the hike. Stretching yourself too thin will leave you without any funds for emergencies.

 

     Take other expenses such as processing fee, stamp duty, etc, into consideration.

 

     Know about fixed and floating rates. Fixed rate refers to a fixed interest rate till you repay the loan. Floating rate refers to interest rates that keep changing depending on market conditions. The interest rate may rise or fall, and you will have to pay EMI accordingly if you have opted for a floating rate.

 

Conclusion

Many factors influence the growth of the real estate sector, such as buyer aspirations, interest rates and housing market 2025 trends. Homebuyers’ decisions are majorly affected by interest rates, as minor rate hikes too prove to be crucial in price-sensitive markets of India. It’s important to assess your income, expenditure, saving goals, and several other factors before you finally make a decision to buy a home. 

Article authored by: Team Propfyndx

Date: 30th June, 2025

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