For home-loan borrowers, the Reserve Bank of India’s (RBI’s) latest rate hike may not show up in the monthly equated monthly instalment (EMI), but it could quietly add months to the loan and lakhs to the interest bill.
The RBI raised the repo rate by 25 basis points to 5.50 per cent on Wednesday. For borrowers whose floating-rate loans are linked to the repo rate, a 25-basis-point increase can push the lending rate higher. For example, a home loan linked directly to the repo rate at 7.50 per cent would become 7.75 per cent.
Borrowers with such loans may see no change in their EMI because banks typically keep it fixed and stretch the tenure instead.
“Customers may not see an immediate EMI impact, but if they check, the tenure would have changed,” said Jagadeesh Mohan, co-founder of EMI Saver.
What it costs
Business Standard’s calculation for a ₹1 crore loan over 20 years:
| Scenario | EMI | Tenure | Total interest (excluding principal) |
| Before the hike (7.50%) | ₹80,559 | 20 years | ₹93.3 lakh |
| After the hike (7.75%), EMI raised | ₹82,095 | 20 years | ₹97.0 lakh |
| After the hike (7.75%), EMI unchanged | ₹80,559 | About 21 years | ₹102.5 lakh |
Raising the EMI by about ₹1,536 a month saves roughly ₹5.4 lakh in interest compared with leaving it unchanged, and avoids about 11 extra months of repayment. The figures assume a fresh loan, one 25 bps hike and no further rate changes.
For a borrower who is already midway, the effect is smaller. The same calculation for a ₹1 crore, 20-year loan after 10 years, with about ₹67.9 lakh outstanding and 10 years left:
| Scenario | EMI | Remaining tenure | Remaining interest |
| Before the hike (7.50%) | ₹80,559 | 10 years | ₹28.8 lakh |
| After the hike (7.75%), EMI raised | ₹81,448 | 10 years | ₹29.9 lakh |
| After the hike (7.75%), EMI unchanged | ₹80,559 | About 10 years 2 months | ₹30.4 lakh |
Raising the EMI by about ₹888 a month saves roughly ₹55,000 in interest compared with leaving it unchanged, and avoids about two extra months of repayment.
Who should act?
Mohan said the effort pays off most in the first half of the loan period, when most of each EMI goes towards interest. After the midpoint, it still saves money, he said, “but is not as lucrative.” Borrowers who can afford a higher EMI should ask their bank, he said. Otherwise, banks typically keep the EMI fixed and extend the tenure.
Pankaj Mathpal, founder of Optima Money, said the bank will not raise the EMI on its own, so borrowers must request it.
Mathpal said that on a floating-rate loan running 15-20 years, rates will move up and down many times, so a borrower who can raise the EMI now should do so. He cautioned against raising the EMI by only the 0.25 percentage point just announced, which could leave borrowers exposed at the RBI’s next policy announcement in a few months. If the budget permits, he advised building in an extra buffer now.
For those without monthly surplus, Mathpal said a lump sum, from a bonus, for instance, also works. Interest in the meantime is charged on the unreduced balance, so paying sooner saves more.
Which loans are affected?
Loans linked to an external benchmark such as the repo rate, known as external benchmark-linked lending rate (EBLR) loans, reset as banks pass on the change. Older loans linked to the marginal cost of funds-based lending rate (MCLR) reset on their scheduled dates, which depend on the bank.
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