RBI Policy: 25 Bps Rate Hike To Add Rs 3.68 Lakh In Home Loans For 25-Years Tenure; Should Home Buyers Apply?

RBI is expected to hike repo rate by 25 basis points to 5.5% on October 7, marking the first hike in 11 months. However, any change in policy repo rate will have a direct impact on term loans, especially on home loan borrowers. At present, all banks are linked to repo rates. And, if a 25 bps hike is imposed, then the chances of interest rising to between Rs 1.7 lakh and Rs 3.7 lakh in home loans of Rs 30 lakh, Rs 50 lakh, and Rs 75 lakh are high.

"Heading into the October policy, the RBI faces a genuinely finely balanced decision. A majority of economists now expect a 25-basis-point hike to 5.50%—the first since 2023—as inflation has run above the 4% target for three straight months, partly fuelled by the surge in US bond yields and elevated crude prices," said Vinit Bolinjkar - Head of Research - Ventura.

If RBI Hikes Rates, What Will Happen To Home Loans Borrowers?

For home loan customers, Puja Abhishek Singh, CEO, Manipal Fintech said, the rate hike can serve as the beginning of stable rate scenarios after the substantial rate reductions seen over the past year. Borrowers on repo-linked loans may see a slight impact on EMIs or loan tenure, while those with older MCLR-linked loans can compare their current rates with available offers and consider switching if it could help them save on their overall borrowing cost.

However, fear of back-to-back rate hike could have a severe impact. Rohit Arora, CEO & Co-founder, Biz2Credit and Biz2X said, for borrowers, the immediate effect is on loan pricing at the margin, not a sudden credit freeze. What matters more for MSMEs and retail borrowers is whether this is a one-and-done move or the start of a cycle as a single 25-bps hike is manageable, but two hikes back-to-back into December would start showing up in EMIs and working-capital costs in a way businesses need to plan for now, not after the fact.

How Rate Hike Will Impact Your Home Loan EMIs? Check The Match

Rs 50 Lakh Home Loans

Example: Rs 50 Lakh Home Loan
Tenure: 25 years = 300 months
Current interest rate: 7.50% p.a.
After hike: 7.75% p.a.
Rate increase: 25 basis points = 0.25 percentage point.

The formula for EMIs calculation is: EMI = [P × r × (1+r)^n] / [(1+r)^n - 1]

P stands for principal amount,
R stands for monthly interest rate
N stands for number of monthly installments.

Home Loan EMIs Before Rate Hike: Monthly Rate will become 7.50% ÷ 12 = 0.625%. The Number of installments will become 25 × 12 = 300. Now, apply all details on the formula mentioned above:

EMI = [₹50,00,000 × 0.00625 × (1.00625)^300] ÷ [(1.00625)^300 - 1] = Rs 36,949.56 ≈ Rs 36,950.

Home Loans EMI After 25 Bps Rate Hike: While the loan amount is same and number of installments will remain same, the rate of interest could change to 7.75% ÷ 12 = 0.645833%.

EMI will be: EMI = [₹50,00,000 × 0.00645833 × (1.00645833)^300] ÷ [(1.00645833)^300 - 1] = Rs 37,766.44 ≈ Rs 37,767.

This will be Rs 812 rise in EMI per month, and Rs 9,803 per year (Rs 812 x 12). However, for the total tenure of 25 years, up to Rs 2.45 lakh could be added in your home loans.

25 Years EMI At 7.50% Rate = Rs 36,949.56 × 300 = Rs 1,10,84,867.67

25 Years EMI At 7.75% Rate = Rs 37,766.44 × 300 = Rs 1,13,29,931.43.

In the old EMI, the total interest paid would be around Rs 60.85 lakh. But in the new EMI after rate hike, the total interest payment will rise to Rs 63.30 lakh.

Particular	Before hike	After 25 bps hike	Difference
Loan amount	₹50 lakh	₹50 lakh	-
Tenure	25 years	25 years	-
Interest rate	7.50%	7.75%	+0.25 pp
Monthly EMI	₹36,950	₹37,767	+₹817
Annual EMI	₹4.43 lakh	₹4.53 lakh	+₹9,803
Total repayment	₹1.11 crore	₹1.13 crore	+₹2.45 lakh
Total interest	₹60.85 lakh	₹63.30 lakh	+₹2.45 lakh

Let's use the same formula for Rs 35 lakh and Rs 75 lakh home loans for 25-years.

Rs 35 Lakh Home Loans

At 7.50% Rate, the EMI will be Rs 25,865 per month. But at 7.75% rate, the EMI will rise by Rs 572 to Rs 26,437 per month. In a year, the EMI will rise by Rs 6,861 to Rs 3.17 lakh from Rs 3.10 lakh. Accordingly, an extra Rs 1.72 lakh in interest will be added in the total home loan payout.

Particular	Current	After 25 bps hike	Impact
Loan amount	₹35 lakh	₹35 lakh	-
Loan tenure	25 years	25 years	-
Interest rate	7.50%	7.75%	+0.25 percentage point
Monthly EMI	₹25,865	₹26,437	+₹572/month
Annual EMI	₹3.10 lakh	₹3.17 lakh	+₹6,861/year
Total repayment	₹77.59 lakh	₹79.31 lakh	+₹1.72 lakh
Total interest	₹42.59 lakh	₹44.31 lakh	+₹1.72 lakh

Rs 75 Lakh Home Loans

On monthly basis, EMIs will rise by Rs 1,225 to Rs 56,650 per month after rate hike compared to the old EMI of Rs 55,424. On annually, extra Rs 14,704 interest will be added and for the entire tenure of 25 years, extra Rs 3.68 lakh will be added as interest.

₹75 lakh home loan
Particular	Current	After 25 bps hike	Impact
Loan amount	₹75 lakh	₹75 lakh	-
Loan tenure	25 years	25 years	-
Interest rate	7.50%	7.75%	+0.25 percentage point
Monthly EMI	₹55,424	₹56,650	+₹1,225/month
Annual EMI	₹6.65 lakh	₹6.80 lakh	+₹14,704/year
Total repayment	₹1.66 crore	₹1.70 crore	+₹3.68 lakh
Total interest	₹91.27 lakh	₹94.95 lakh	+₹3.68 lakh

The repo rate indirectly affects interest rates on home loans since it is the cost at which banks borrow from the Reserve Bank of India (RBI). When the repo rate is increased, banks may adjust lending rates to align with the revised borrowing costs. This can result in changes to home loan interest rates or EMIs, particularly for borrowers with floating-rate loans, as per PNB Housing Finance.

Check Latest Home Loan Rates

SBI Home Loan Rates

At present, SBI offers 7.25% to 8.55% rates on its regular home loan products. For home loans Maxgain (OD), the rate varies from 7.75% to 9.05%. In case of top-up home loans, the rate will be between 7.75% to 10.50%.

HDFC Bank Home Loan Rates

HDFC Bank charges 7.75% to 13.20% rates on all its housing loans for both salaried and self-employed individuals.

ICICI Bank Home Loan Rates:

For salaried individuals, ICICI Bank gives 8.50% - 9.40% on home loans up to Rs 35 lakh, while the rates are 8.50% - 9.55% on home loans between Rs 35 lakh to Rs 75 lakh. Lastly, the rates will be 8.50% - 9.65% on home loans above Rs 75 lakh. For self-employed, the rates vary from 8.50% to 9.80%.

Real Estate Is Wishing For Status Quo Instead Of Hike:

"The RBI should consider maintaining a status quo as a repo rate hike at this juncture could raise the cost of capital and may affect investment decisions across the real estate sector. This will also have a direct impact on homebuyer sentiment and affordability as even a marginal increase in home loan rates can influence purchase decisions, particularly among first-time and mid-income buyers," said Ramani Sastri - Chairman & MD, Sterling Developers.