The ‘s Monetary Policy Committee (RBI MPC) unanimously voted to raise the repo rate by 25 bps to 5.50% from 5.25% on 7 October, marking the first such increase in over three years, since February 2023.
RBI Governor , in his speech, flagged the threat of inflation, citing that global inflation may increase sharply, prompting global monetary tightening, noting that in the current economic situation, rate cuts are not a possibility in the near term. Watchers thus expect more hikes or a pause on current interest rates in the coming MPC meetings as well.
How does repo rate impact home loans?
Notably, the RBI’s decision to raise its interest rates has a direct impact on borrowers and investors. After the central bank’s decision, several banks hiked their repo-linked lending rates, thus making linked to these benchmarks potentially more expensive.
Prominent lending institutions such as State Bank of India (), Punjab National Bank (PNB), Bank of India, Indian Bank, Bank of Baroda and have revised their respective lending benchmarks in October 2026.
When it comes to home loans, borrowers have a choice to either increase their equated monthly instalment () or extend the repayment tenure. While the second option offers immediate relief, it can increase the total interest paid over the life of the loan.
However, there is no one right answer. For borrowers already managing substantial expenses, other or those with irregular incomes, a higher EMI amount could be difficult to honour. In such cases, extending the tenure can help manage their monthly budget even though the loan remains outstanding for longer.
Impact on ₹30 lakh, ₹50 lakh, ₹80 lakh or ₹1 crore home loans
In principle, increasing the EMI while retaining the original tenure helps repay the outstanding principal faster. This is because interest is calculated on the outstanding principal. On the other hand, spreads repayment over a longer period. While this reduces the immediate repayment pressure, interest continues to accrue for additional months.
Today, we illustrate and compare impact of the repo rate hike on your ₹30 lakh, ₹50 lakh, ₹80 lakh or ₹1 crore home loans, for both scenarios on the assumption that your base interest rate (p.a.) was 8.00% to be repaid over 20 years (240 months). After your new interest rate (p.a.) jumps to 8.25%. Check calculations:
| BASE LOAN (before hike) | ||||
|---|---|---|---|---|
| Loan amount | ₹30 Lakh | ₹50 Lakh | ₹80 Lakh | ₹1 Crore |
| Monthly EMI | ₹25,093 | ₹41,822 | ₹66,915 | ₹83,644 |
| Total repaid | ₹60,22,368 | ₹1,00,37,281 | ₹1,60,59,649 | ₹2,00,74,562 |
| Total interest | ₹30,22,368 | ₹50,37,281 | ₹80,59,649 | ₹1,00,74,562 |
| Same tenure, higher EMI | ₹30 Lakh | ₹50 Lakh | ₹80 Lakh | ₹1 Crore |
| New EMI | ₹25,562 | ₹42,603 | ₹68,165 | ₹85,207 |
| EMI increase per month | ₹469 | ₹781 | ₹1,250 | ₹1,563 |
| Tenure (months, unchanged) | 240 | 240 | 240 | 240 |
| Total repaid | ₹61,34,873 | ₹1,02,24,788 | ₹1,63,59,661 | ₹2,04,49,576 |
| Total interest | ₹31,34,873 | ₹52,24,788 | ₹83,59,661 | ₹1,04,49,576 |
| Extra interest vs base | ₹1,12,504 | ₹1,87,507 | ₹3,00,011 | ₹3,75,014 |
| Same EMI, longer tenure | ₹30 Lakh | ₹50 Lakh | ₹80 Lakh | ₹1 Crore |
| EMI (unchanged) | ₹25,093 | ₹41,822 | ₹66,915 | ₹83,644 |
| New tenure (months, rounded up) | 252.00 | 252.00 | 252.00 | 252.00 |
| Extra tenure (months) | 12 | 12 | 12 | 12 |
| New tenure (years) | 21.0 | 21.0 | 21.0 | 21.0 |
| Total repaid | ₹63,19,968 | ₹1,05,33,280 | ₹1,68,53,248 | ₹2,10,66,560 |
| Total interest | ₹33,19,968 | ₹1,05,33,280 | ₹1,68,53,248 | ₹2,10,66,560 |
| Extra interest vs base | ₹2,97,599 | ₹4,95,999 | ₹7,93,599 | ₹9,91,998 |
| COMPARISON: Higher EMI vs Longer tenure | ₹30 Lakh | ₹50 Lakh | ₹80 Lakh | ₹1 Crore |
| Extra interest – higher EMI route | ₹1,12,504 | ₹1,87,507 | ₹3,00,011 | ₹3,75,014 |
| Extra interest – longer tenure route | ₹2,97,599 | ₹4,95,999 | ₹7,93,599 | ₹9,91,998 |
| Saved by choosing higher EMI | ₹1,85,095 | ₹3,08,492 | ₹4,93,587 | ₹6,16,984 |
| Tenure extension costs (x times) | 2.6x | 2.6x | 2.6x | 2.6x |
| Disclaimer: The figures and rates mentioned are illustrative calculations only. Actual figures may vary based on the borrower’s profile; Source: BankBazaar.com |
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As seen in the comparative illustration above, purely on numbers, across the various sizes, choosing higher EMI is consistently better in terms of reducing your overall financial burden. In case of the ₹30 lakh, ₹50 lakh, ₹80 lakh and ₹1 crore home loans, the difference is 2.6 times.
In case you are unable to choose the higher EMI option, borrowers can opt for partial prepayment at a time suitable to their finances to help reduce the outstanding principal, potentially lowering the interest burden.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment or financial decisions.