Mumbai: Home loan borrowers could face higher monthly repayments after the Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 5.50 percent, just ahead of the festive season.
The hike from 5.25 percent could make home, car and personal loans more expensive if banks pass on the higher borrowing cost to customers. For borrowers with floating-rate loans, the impact could come through a higher EMI or longer repayment tenure.
How Much Can Your EMI Increase?
To understand the possible impact, consider a home loan currently carrying an interest rate of 7.50 percent with a remaining tenure of 20 years.
If the entire 25-basis-point increase is passed on by the lender, the interest rate would rise to 7.75 percent.
Rs 20 Lakh Home Loan
For a Rs 20 lakh home loan at 7.50 percent for 20 years, the monthly EMI works out to approximately Rs 16,112.
If the interest rate increases to 7.75 percent, the EMI would rise to about Rs 16,419.
This means the borrower would pay around Rs 307 more every month.
Rs 30 Lakh Home Loan
A borrower with a Rs 30 lakh home loan at 7.50 percent for 20 years currently pays an EMI of approximately Rs 24,168.
At an interest rate of 7.75 percent, the monthly payment would increase to around Rs 24,628.
The increase works out to about Rs 460 per month.
Rs 50 Lakh Loan Gets Costlier
For a Rs 50 lakh home loan at 7.50 percent with a 20-year tenure, the EMI is approximately Rs 40,280.
After a 25-basis-point increase to 7.75 percent, the EMI would rise to around Rs 41,047. That means an additional monthly burden of nearly Rs 767.
The actual impact will depend on whether the lender passes on the full rate hike, the loan's benchmark and spread, and the remaining tenure.
What Bankers Say?
Pralay Mondal, MD & CEO of CSB Bank, called the repo rate hike a “prudent step” amid an uncertain global environment.
“The underlying stress in inflation for the next few quarters warranted some steps in time to prevent further escalation,” Mondal said.
He added that the RBI is expected to maintain adequate liquidity to ensure smooth functioning of money markets.
Repo Rate Raised After Nearly Four Years
The latest move marks the first repo rate hike since February 2023. The RBI had kept the rate unchanged at 5.25 percent in its previous three monetary policy meetings this year.
The EMI calculation uses the standard formula: P × R × (1+R)^N / [(1+R)^N−1], where P is the loan amount, R is the monthly interest rate and N is the number of monthly instalments.
