Mumbai, Jan. 31: Home loan borrowers — who have struggled to pay their equated monthly instalments (EMIs) after relentless rate rises over the past three years — have reason to smile again.

HDFC, the country’s largest home loan financier, today sprang a surprise by trimming its floating rate on home loans by 25 basis points, or a quarter of a percentage point.

Almost 70 per cent of borrowers take home loans at floating rates, hoping they won’t go up. Over the years, they have despaired as rates increased, forcing many of them to make large upfront payments just to retain their EMIs at the original levels.

HDFC slashed its benchmark interest rate for retail home loans — known as the retail prime lending rate (RPLR) — to 13.75 per cent. The floating rates are linked to the RPLR and crucially hinge on the creditworthiness of the borrower.

The rate cut comes into effect from February 1.

The cut in the benchmark rate means that all existing floating rate home loan borrowers — irrespective of their loan tenures — will stand to benefit.

The revised rates will depend on the rate reset dates. In HDFC’s case, the reset occurs every quarter. Thus, for instance, if an individual had taken a loan in November, the revised rates will be applicable from February.

Last June, HDFC had offered a festival home loan rate of 10.25 per cent to new home loan seekers but did not extend the benefit to existing borrowers, causing some heartburn. Sources said the festival home loan borrowers would also benefit from the rate cut if their loans had been disbursed by January 31.

Today’s rate cut was unexpected after RBI decided against a change in its benchmark rates on Tuesday.

HDFC’s joint MD Renu Sud Karnad said: “We have been able to bring down our costs because of improved operational efficiency and good-quality portfolio. We have ensured that it translates into a benefit for the customers. While we were able to offer our new customers a special rate of interest since June 2007 because of good liquidity conditions, our existing customers were not able to enjoy the benefit.”

An HDFC statement added that the advantage of a cut in the RPLR would accrue to all existing floating rate customers over the next three months based on their respective reset dates.

In the case of new home loan customers, HDFC’s rate of interest under the adjustable rate continues to be pegged at 10.25 per cent.

HDFC sources said the cut in rates would either result in a reduction in the EMIs or the tenure of the loan, depending on the choice of the borrower.

In its latest monetary policy, the RBI had asked banks to bring down their rates which, it felt, were being kept high even though the financial system was awash with cash.

ICICI Bank and State Bank of India — the two other major players in the home loan segment — have given no indication that they will follow HDFC’s lead.

Sources close to ICICI Bank, the largest private-sector bank, indicated that while they were watching the situation, the rates would be cut only if the borrowing costs came down.

Home loans turned expensive since mid-2004 after RBI frequently raised key monetary policy rates to beat down inflation.