RBI repo rate hike: How home loan borrowers can reduce EMI and interest burden

Home loan borrowers in India are set to see their interest rates rise after nearly four years, prompting them to revisit their repayment strategies.

The Reserve Bank of India’s Monetary Policy Committee (MPC) raised the repo rate by 25 basis points on 7 October, from 5.25% to 5.5% (100 basis points make up one percentage point). The hike aligns with the tightening approach adopted by major global central banks.

As new retail floating-rate loans sanctioned since 1 October 2019 are linked to external benchmarks, mostly the repo rate, borrowers are likely to see higher rates. RBI data shows 68.2% of floating-rate loans are externally benchmarked.


Moreover, with the RBI shifting its stance from ‘neutral’ to ‘calibrated tightening’, borrowers may need to brace for further rate hikes of up to 75 basis points in the coming months. “We expect cumulative rate hikes by the central bank to the tune of another 50-75 bps over the next few months. The risk of a more aggressive rate hike cycle hinges on whether the current West Asia conflict and rise in oil prices con tinue to linger for longer,” said Sakshi Gupta, Chief Economist, HDFC Bank.

New borrowers should decide whether to buy a house based on their need to live in it, rather than the prevailing interest-rate cycle. Those clos erto finalising a deal should, however, watch for festive offers that may come with lower interest rates.

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Existing borrowers will also need to review their home loan interest and repayment plan.

Assuming a 75 bps rate hike by April 2027, their interest payable is set to rise sharply. Now, suppose a borrower is currently servicing a Rs 50 lakh home loan with a 20-year tenure at an interest rate of 7.25% per annum. “By April next year, her interest rate will go up to 8%, and interest costs will swell from Rs.44.85 lakh to Rs.50.37 lakh. It is, therefore, time to rethink and redraw your repayment plan,” says Vipul Patel, Founder, MortgageWorld, a loan advisory platform.

Banks must review their interest rates at least once every three months, so your inter est rate will be reset in due course. Bank of India has already announced a 25 bps hike in its home loan interest rates. Other banks are bound to follow suit.

At your end, you will have to choose between an extension in loan tenure (typically, the default lender option) or an increase in equated monthly instalment (EMI) to account for the repo rate hike. In August 2023, the banking regulator asked banks to clearly intimate their customers about options available: enhancement in EMI, elongation of the number of EMIs (that is, loan tenure) keeping the EMI unchanged or a combination of both options.

“On a Rs 1 crore home loan, your monthly EMI will go up by a little over Rs 1,500 due to the 25-bps hike (see graphic). It always makes sense to choose an EMI hike over re payment period extension, your cash flows permitting,” says Anuj Kesarwani, Founder, Zenith Finserve, a financial advisory firm. Likewise, on Rs.50 lakh and Rs 75 lakh loans, EMIs will rise by Rs 768 and Rs 1,152, respectively, over a 20-year repayment tenure. Instead, if you extend the tenure, you will have to bear a higher interest rate burden. However, if you keep the EMI unchanged on a Rs 50 lakh loan, you will pay an additional Rs 2.72 lakh over the life of the loan compared to increas ing the EMI.

“If you opt to increase the EMI, the loan tenure remains unchanged at 20 years (240 months), but you pay more interest due to the higher rate. If you keep the EMI unchanged, the loan tenure increases by 12 months, resulting in an even higher interest outgo,” he adds.

Part-prepayments can help

Regular lump-sum prepayments are another way to reduce the principal amount and, thus, the interest outgo over the repayment period. Consider a borrower with a Rs 50-lakh loan and a 20-year tenure who decides to make a lump-sum prepayment of Rs 1 lakh after her home loan interest rate creeps up to 7.75% from 7.5%, following a repo rate hike. By doing so, she can cut her interest cost over the repayment period by about Rs 3.51 lakh. However, if lump-sum prepayments are difficult, then you can consider voluntarily raising the EMIs. “Even a modest EMI hike of Rs 2,000-5,000 can drastically bring down your interest burden,” says Patel. For example, say, post the RBI repo revision, you decide to increase your EMI voluntarily by Rs 5,000 on a Rs 50-lakh home loan with a 20-year repayment period.

You will not only slash your interest payable by close to Rs 12 lakh, but your loan tenure will also shrink to around 16 years, down from 20 years.

Increase EMI or extend tenure: what works best?

Negotiate with your lender

Another tool to reduce interest costs is to negotiate with your lender. Your home loan rate comprises the repo rate, operating costs and credit risk premium. Operating costs can be reviewed and reset every three years. “There is room for negotiation in the credit risk premium element. Lenders can review it regularly, without any set timeframe. So, if your credit scores are high, you can use that as leverage to get your lender to offer the best possible interest rate to you,” says Kunal Shah, Co-founder, SURE Financial, a loan analytics start-up. For instance, if your credit score has improved from 750 to over 800 since taking a home loan in 2025, you can negotiate a 50 bps rate cut if your lender offers lower rates to borrowers with scores above 800 and has not already passed on the benefit. “Even if your lender does not disclose credit score-linked interest rate grid transparently on its website, any significant improvement in your credit score should prompt you to proactively negotiate with your existing lender,” he adds.

Consider switching lenders

If your bank does not reconsider, use your improved credit profile to switch to another lender offering a lower rate. Keep an eye out for festive offers, where banks may offer low er rates to new borrowers, including custom ers who transfer loans. Finally, borrowers servicing older loans linked to the marginal cost of funds-based lending rate (MCLR) should consider switching to an external benchmark-linked lending rate (EBLR) loan, even if it entails a nominal fee. According to RBI, nearly one-third (29.6%) of floating-rate loans remain linked to MCLR, where trans mission of repo rate changes to borrowers has been less effective.