Home Loan EMIs to Increase as RBI Hikes Repo Rate; Know How Much you Have to Shell Out


The Reserve Bank of India (RBI) has increased the repo rate by 50 basis points to 5.4 per cent on August 5. India’s central bank has also remained focused on withdrawal of accommodative stance to maintain inflation within the target while supporting growth.”RBI’s decision to raise the repo rate is in response to the headwinds being faced by Indian economy including high inflation, uneasy financial markets, foreign portfolio outflows, majorly caused by distress in the global economic situation,” said Pradeep Multani, president, PHD Chamber of Commerce and Industry.

Repo rate refers to the rate at which commercial banks borrow money from the Reserve Bank of India. If the central bank increases repo rate, the cost of borrowing for retail and other loans by the banks, also goes up. Banks will pass on the rising cost to the borrowers by hiking the interest rates of loans. As a result, home loan borrowers will have to shell out more in terms of equated monthly installments (EMIs) for home loans and personal loans.

“So far the commercial banks have transmitted the policy rate hike to the borrowers, resulting in an increase in lending rates across all the sectors including real estate. Today’s rate hike will further harden the rates,” said Shishir Baijal, chairman and managing director, Knight Frank India.

Home Loan EMIs to Increase: Know How Much you have to Pay More

RBI has raised repo rate by 140 basis points in 2022. After the current hike, the total increase in repo rate is 1.4 per cent. This will impact both the new and existing borrowers. “As most of the lenders have linked their home loan  lending rate with the repo, the impact on borrowers would be immediate,” explained Pranjal Kamra – CEO, Finology Ventures.

For those borrowers who have taken home loans before April, the interest rate is expected to rise around 8 per cent from 6.5 to 7 per cent after RBI’s August Monetary Policy.

For instance, if you have already taken a home loan of Rs 30 lakh at 7 per cent for a tenure of 20 years in April, 2022, your EMI will go to Rs 25,845 from Rs 23,259. There will be a jump of Rs 2,586 in monthly EMIs, if the home loan interest rate climbs to 8.4 per cent from 7 per cent after three back-to-back repo rate hikes.

RBI Rate Hike Impact on Home Sales

The rate hikes will have a moderate impact the real estate market in India, believed analysts. “The hike by 50 bps is definitely on the higher side, and home loan lending rates will now edge further into the red zone. This is the third consecutive rate hike in the last two months and finally marks the end of the all-time best low-interest rates regime – one of the major factors that drove housing sales across the country since the pandemic,” mentioned Anuj Puri, chairman – ANAROCK Group.

“This whammy comes along with the inflationary trends of primary raw materials, including cement, steel, labour, etc., that have recently led to a rise in property prices. Together, these factors – rising home loan rates and construction costs – will impact residential sales that did reasonably well in the first half of 2022,” he further added.

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