RBI rate hike: Your home loan EMI just went up

Mumbai: New home, car and personal loan customers are set to face higher borrowing costs after the Reserve Bank of India (RBI) on Wednesday raised its policy rate by 25 basis points to 5.50%. In the mortgage market, demand for affordable homes will be keenly watched due to the lower disposable cash available with price-sensitive buyers.

After the central bank's first rate increase since February 2023, existing home loan borrowers may see either a higher monthly instalment or a longer repayment period when their loan rate resets.

"We do expect that floating home rates will be repriced and higher construction costs will be passed onto the buyers, with mid-segment affordability likely to remain under the scanner," said Lata Pillai, senior MD and head, Capital Markets, India, JLL.


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According to her, the pace and extent of further rate hikes are likely to matter more to the overall market than a single 25 bps rate hike. If further rate hikes could be avoided, the demand dent is expected to be minimal.

"Demand fundamentals remain strong and a robust GDP growth, growing investments and a healthy construction sector are likely to absorb the negative impact," Pillai said. While overall credit climbed more than 19% in the first five months of FY27, RBI data published earlier showed secured retail credit - particularly of homes and borrowings against pledged gold - has exceeded loan demand in other consumer discretionary categories.

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Together with corporate loans, retail borrowing is at the vanguard of incremental credit growth in India, where outstanding system-level loans climbed to ₹224 lakh crore at the end of August.

The monetary policy committee (MPC) voted unanimously for the increase and adopted a stance of "calibrated tightening". RBI Governor Sanjay Malhotra said rate cuts were off the table for now, leaving a further increase or a pause as the choices at future meetings.

The impact on existing borrowers will depend on the benchmark in their loan agreement. Banks must reset rates on loans linked to an external benchmark at least once every three months.

A repo-linked home could therefore become more expensive at its next reset if the bank passes on the full increase.