RBI repo rate hike: How will the 25 bps increase affect your home-loan EMI? Experts explain

RBI has raised the repo rate by 25 bps to 5.50%, increasing borrowing costs for consumers with floating-rate loans linked to external benchmarks. Home-loan borrowers may see the hike reflected through higher EMIs, longer repayment tenures or both, depending on their lender’s mechanism.

The Reserve Bank of India (RBI) has raised the repo rate by 25 basis points to 5.50%, marking the first increase since February 2023. For home-loan borrowers, the rate hike could translate into a higher EMI or a longer repayment tenure, depending on the lender and the loan's reset mechanism.

The impact will be quicker for borrowers with floating-rate home loans linked to external benchmarks such as the repo rate. Existing borrowers should check their loan's benchmark and reset frequency to understand when the rate hike could affect their repayments, said Santosh Agarwal, CEO, Paisabazaar.

How much could your home-loan EMI rise?

The impact of the 25-basis-point hike will depend on the outstanding loan amount, remaining tenure and the interest rate applicable to the borrower.

For illustration, at an interest rate of 7.5% over a 25-year tenure, the monthly EMI could rise by about ₹490 on a ₹30 lakh loan, ₹654 on a ₹40 lakh loan and ₹817 on a ₹50 lakh loan once the increase is passed on, said Adhil Shetty, CEO, BankBazaar.

The actual impact will vary depending on the borrower's loan terms and the lender's reset mechanism.

Shetty said the effect on borrowers would be gradual. The latest increase is one-fifth of the 125 basis points of rate cuts delivered earlier, meaning much of the relief from those earlier cuts remains in place.