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How Will the RBI Repo Rate Hike Affect Home Loans?

7 October 2026

17:57

Mumbai: The Reserve Bank of India’s (RBI) repo rate hike is likely to have the most direct impact on borrowers with floating-rate loans – loans whose interest rates can change – particularly those whose loans are linked to external benchmarks – reference rates used by banks to set loan interest rates.

Many floating-rate retail loans issued in recent years are linked to external benchmarks such as the repo rate. When the benchmark rises, lenders may increase the interest rate on such loans, subject to the terms of the loan and the lender’s reset mechanism — the rule that determines when and how a loan’s interest rate can change.

For instance, a borrower with a ₹50 lakh home loan for 25 years at an interest rate of around 7.5% could see the monthly EMI rise by roughly ₹800 if the lending rate increases by 25 basis points assuming the loan tenure — the period over which the loan is repaid — remains unchanged. The actual impact would vary depending on the lender and the terms of the loan.

An increase of this size may appear modest on its own. However, the financial impact can become more significant if interest rates rise repeatedly.

Four consecutive increases of 25 basis points each would add up to a one-percentage-point increase in the interest rate. For borrowers with large home loans and long repayment periods, such increases can substantially raise the total interest payable over the life of the loan.

Depending on the loan terms, banks may increase the borrower’s EMI, extend the repayment period or make a combination of both adjustments when interest rates rise. Borrowers with fixed-rate loans are generally protected from changes during that period.