What if RBI hikes repo rate by 25 bps? Check impact on your home loan EMI, interest
A 25-basis-point repo rate hike may sound small, but for someone paying a home loan, it could mean a higher monthly EMI and a bigger interest bill over the years.
The Reserve Bank of India (RBI) is set to announce its monetary policy decision on Wednesday, October 7, with markets closely watching for a possible 25-basis-point (bps) increase in the repo rate.
The meeting comes at a time when crude oil prices and global bond yields are rising, while inflation risks are also increasing. Economists are increasingly expecting a 25-bps hike.
CA Kinjal Shah, President, Bombay Chartered Accountants Society (BCAS), said, “With retail inflation rising, elevated energy costs, and global tightening, a 25-bps repo rate hike to 5.50% is widely anticipated. Beyond the rate decision, clear stance guidance on liquidity and future rate paths is vital to anchor inflation expectations, maintain credit flow while preserving domestic growth.”
The repo rate currently stands at 5.25%. If the RBI raises it by 25 bps, it would move to 5.50%. This would be the first-rate increase since February 2023.
For home loan borrowers, the key question is what such a move could mean for their monthly repayment.
Puja Abhishek Singh, CEO, Manipal Fintech, said, “With inflation remaining an important consideration, the upcoming MPC meeting will be closely watched, with the possibility of a 25 bps rate increase also being discussed.”
“For home loan customers, it 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,” she added.RS 50 LAKH LOAN: HOW MUCH EMI WOULD RISE?
Consider a Rs 50 lakh home loan taken for 25 years at an interest rate of 7.5%.
According to BankBazaar, the EMI on this loan is around Rs 36,950. The total interest payable over the full 25-year (300 months) period would be approximately Rs 60.85 lakh.
Now, if the interest rate rises by 25 bps to 7.75%, the EMI would increase to around Rs 37,766, says the fintech platform.
That means the borrower would have to pay around Rs 817 more every month, assuming the loan tenure remains unchanged.TOTAL INTEREST COULD RISE BY RS 2.45 LAKH
The bigger impact becomes clear when the total interest cost is considered.
At 7.5%, the borrower would pay around Rs 60.85 lakh in interest over 25 years. At 7.75%, the total interest would rise to around Rs 63.30 lakh, says Bankbazaar.
This means the 25-bps increase could add approximately Rs 2.45 lakh to the total interest cost over the full loan period.
The BankBazaar calculation keeps the loan amount at Rs 50 lakh and the tenure at 25 years. The only change is the interest rate, which moves from 7.5% to 7.75%.WHAT THE NUMBERS MEAN FOR BORROWERS
The calculation shows why even a small change in the interest rate can matter over a long loan tenure.
The EMI rises from Rs 36,950 to Rs 37,766, a difference of Rs 817 a month. While that may seem manageable, the additional interest over 25 years adds up to around Rs 2.45 lakh.
However, the actual impact on a borrower will depend on the lender and the way any repo rate change is passed on to customers.
For those with repo-linked floating-rate home loans, a change in the benchmark rate could affect either the EMI, the loan tenure or both, depending on the lender's policy.
With the RBI's decision due on Wednesday, borrowers will be watching not just the rate announcement but also the central bank's guidance on inflation and the future path of interest rates.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)- Ends
Jasmine Anand is a Senior Reporter (Emerging Tech) at India Today. With over 15 years of experience, she has earlier worked as a Financial Journalist in a multinational equity research firm, tracking equities, stock market, economy, IPOs and market-moving stories. Jasmine's forte is to scribe meticulously complex facts and figures into lucid and interesting reads. In her leisure time, she loves binging on movies and is passionate about painting, calligraphy, arts and crafts.
