The RBI's 25 basis point increase in the repo rate on Wednesday, to 5.50 per cent, will reach many home loan borrowers within the next three months. Whether your EMI goes up, by how much and when depends on what your loan is linked to, and on what your bank decides to do with its own rates.
This explainer works through the numbers. Every EMI and deposit figure below is our own arithmetic for illustration, using round example rates. Your bank's actual rate, spread and reset date are in your loan agreement and Key Facts Statement, and those are what count. The full decision, including the new stance of calibrated tightening, is in our report on the RBI's repo rate hike to 5.50 per cent.
Which loans move, and when
Since October 2019, the RBI has required banks to link new floating-rate retail loans, home loans included, to an external benchmark. Most banks picked the repo rate. Your rate is that benchmark plus a spread, and the RBI's rules say the rate under an external benchmark must be reset at least once every three months. So a repo-linked home loan will usually pick up the 0.25 percentage point increase at its next reset date.
Older loans linked to a bank's MCLR, base rate or BPLR follow a different path. They change only when the bank revises that internal rate and your loan reaches the reset date written in your agreement. A fixed-rate loan does not change at all during its fixed period. Your Key Facts Statement or sanction letter says which kind you have.
The EMI arithmetic, worked out
Take a Rs 50 lakh home loan for 20 years. For illustration, assume a repo-linked rate of 8.00 per cent that goes up to 8.25 per cent after the hike. The EMI rises from Rs 41,822 to Rs 42,603, which is Rs 781 more a month. If the higher rate held for the full 20 years, total interest would go up by about Rs 1.88 lakh, from roughly Rs 50.37 lakh to Rs 52.25 lakh.
A smaller loan moves less. On an illustrative Rs 30 lakh loan for 15 years, the same change from 8.00 to 8.25 per cent takes the EMI from Rs 28,670 to Rs 29,104, or Rs 435 more a month. On a Rs 75 lakh loan for 25 years, the EMI rises from Rs 57,886 to Rs 59,134, an increase of Rs 1,248.
Most people are part way through a loan, and the increase then applies to the outstanding balance. Say you took that Rs 50 lakh loan five years ago at 8.00 per cent. About Rs 43.76 lakh would still be outstanding, with 15 years left. At 8.25 per cent the EMI on that balance works out to Rs 42,456, which is Rs 634 more than before.
Higher EMI or a longer loan
Many banks keep the EMI unchanged when rates rise and stretch the tenure instead. In the illustrative Rs 50 lakh, 20 year case, keeping the EMI at Rs 41,822 at 8.25 per cent means about 252 instalments instead of 240, so roughly a year more of payments. On the Rs 75 lakh, 25 year example, the extra stretch is close to two years.
The RBI's rules on resetting floating rates on EMI-based personal loans, which include home loans, give borrowers some say here. A lender must tell you straight away when a rate increase raises your EMI or stretches your tenure. At reset, it must let you choose a higher EMI, a longer tenure or a mix of the two, and let you prepay in part or in full at any point. A switch to a fixed rate is available only if your lender offers it under its board-approved policy. Ask your bank which option it has applied, since a longer tenure costs more in total interest.
What it means for fixed deposits
A fixed deposit you have already booked keeps its rate until it matures. A repo rate increase does not change it. Rates on new deposits are set by each bank, and banks announce any revision on their official websites.
The RBI's own data shows that deposit and lending rates have not been moving together. The Governor's statement noted that in July and August, the weighted average lending rate on fresh rupee loans rose by 8 basis points, while the weighted average rate on fresh term deposits fell by 28 basis points, which the RBI put down to lower rates on bulk deposits after a surge in liquidity.
For a sense of scale, here is an illustrative example, not a suggestion to pick any product: a Rs 5 lakh one-year deposit at 6.50 per cent, compounded quarterly, earns about Rs 33,301 in interest. At 6.75 per cent, it earns about Rs 34,614, or Rs 1,313 more. Whether and when any bank raises its rates is up to that bank.
What the Governor said at the press conference
At the post-policy press conference at noon, Governor Malhotra was asked whether a 50 basis point increase had been considered. He said the committee discussed all possibilities before deciding. By changing the stance, he said, the RBI has made it clear there is no rate cut in the near term, and the choice ahead is between a pause and another hike. How deep or shallow any further increase is will depend on how growth and inflation evolve.
Asked when banks would pass on higher rates to depositors, the Governor spoke about the surplus money in the banking system, which the RBI's statement had linked to lower deposit rates. He said surplus liquidity is much more than what is required right now, but he does not expect it to last very long, and expects a large part of it to drain within this financial year. Any change in deposit rates will still come from individual banks.
Planning a car or two-wheeler loan this Diwali
If you are taking a vehicle loan in the festive season, check first whether it is fixed or floating, and read the annual percentage rate and the prepayment terms in the Key Facts Statement. Our guide to six RBI rules to know before taking a car or two-wheeler loan this Diwali explains what the lender has to show you before you sign.
What happens next
The MPC's minutes will be published on 21 October, and the next meeting is on 2 to 4 December 2026. The committee has said that rate cuts are off the table in the near term and that its next move can only be a hike or a pause. Borrowers on floating rates should watch for their bank's rate revision notice and their next reset date.
