RBI Repo Rate Hike: Repo rate raised by 0.25% – how much will your EMI increase on a ₹50 lakh home loan?
RBI Repo Rate Hike: The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) decided on Wednesday to hike interest rates by 25 basis points, or 0.25%. This latest increase in the repo rate will directly impact individuals who have taken loans at floating interest rates. As the repo rate rises, the cost of funds for banks will increase, and they will begin passing this burden on to their customers.
What will be the impact on a ₹50 lakh home loan?
The EMIs of customers with floating-rate home loans are directly linked to external benchmarks like the repo rate. Once banks reset their interest rates, the customers' monthly installments will increase.
If an individual has taken a home loan of ₹50 lakh for a tenure of 20 years, a 0.25% hike will increase their monthly EMI by approximately ₹780. If they do not alter the loan tenure, they will end up paying an additional ₹1.88 lakh in interest over the entire 20-year period. The figures become even more significant when considering a ₹50 lakh loan with a 25-year (300-month) tenure.
Previously, at an interest rate of 7.5%, the monthly EMI was ₹36,950.
This translates to a direct increase of ₹816.87 in the monthly EMI.
Over the full 25-year period, the total interest payable will rise from ₹60,84,870 to ₹63,29,931, resulting in an additional interest cost of ₹2,45,063. Customers with fixed-rate home loans will not face an immediate impact, but costs will rise for new borrowers or those opting to refinance.
Is extending the loan tenure a good idea?
When interest rates rise, many banks offer customers the option to extend their loan tenure instead of increasing their monthly EMI. While this option appears convenient—as it avoids disrupting the monthly budget—it often proves to be a costly proposition in reality. Extending the tenure slows down the repayment of the principal amount, leading to a significant increase in the total interest cost over the long run. Therefore, experts advise against extending the tenure solely for immediate relief.
How to mitigate the impact on EMIs
Partial Pre-payment: If you receive surplus funds or a bonus, use it to make an early repayment of a portion of the loan. This reduces the principal amount and lowers the overall interest burden.
Switching Banks (Balance Transfer): If your current bank is charging a high interest rate, consider transferring your loan to a bank offering a lower rate.
Reducing Loan Tenure: If possible, plan to pay off the loan ahead of schedule by slightly increasing your monthly EMI.
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