Repo rate raised to 5.50% as RBI turns to calibrated tightening; home loan EMIs may rise

Mumbai, October 2026: The Reserve Bank of India has recently raised the repo rate, and home loan EMIs are back in discussion. The repo rate has been increased by 25 basis points to 5.50 per cent. The RBI has shifted its policy stance towards calibrated tightening, which is seen as a signal of a change in the interest rate cycle.

When interest rates rise, the talk is mostly about higher EMIs. But many borrowers overlook another challenge: the effect of higher rates on the loan tenure and the total cost of the loan.

For most people, buying a home is the biggest financial responsibility of their lives. Besides the down payment, they must also meet the costs of stamp duty, registration fee, interiors, furniture and moving. The first few years after buying a home are therefore the most financially stressful. Even so, many borrowers keep choosing floating-rate home loans because they look slightly cheaper at the time of sanction.

When rates rise, floating-rate borrowers mainly have two options. One is to pay the higher EMI. The other is to keep the EMI the same and extend the loan tenure, which raises the total cost of the loan over time.

Even after the latest increase, the repo rate is still 100 basis points below the 6.50 per cent level of the previous rate cycle. This makes it clear that interest rates can change considerably over the full term of a long-tenure home loan. In such conditions, home buyers are now leaning towards solutions that offer more certainty on the monthly instalment.

Kotak Mahindra Bank's hybrid home loan lets eligible customers keep the interest rate on their home loan fixed, equal to the bank's floating-rate home loan rate, for 39, 52 or 65 months. There is no separate additional charge for the hybrid option. Even if the repo rate rises during the chosen period, the interest rate and EMI do not change. When the fixed period ends, the loan converts to a floating-rate structure linked to the repo rate fixed at the time of sanction and a pre-determined spread.

The bank's example takes home loans of Rs 1 crore and Rs 75 lakh over 25 years. It assumes a fixed interest rate of 7.60 per cent, a fixed-rate period of 65 months, and a total rise of 100 basis points in the repo rate during this period, from 5.50 per cent to 6.50 per cent. On the Rs 1 crore loan, the floating EMI is Rs 74,550 at the start and becomes Rs 82,450+ in the 65th month. The hybrid EMI stays at Rs 74,550 throughout. The difference in the 65th month is Rs 7,900+, and the potential benefit over the fixed period is stated to be Rs 3.46 lakh. On the Rs 75 lakh loan, the floating EMI rises from Rs 55,900 to Rs 61,800+, while the hybrid EMI stays at Rs 55,900. Here the difference is Rs 5,900+ and the potential benefit is Rs 2.59 lakh. The example is only for illustration. The actual impact may differ depending on the loan amount, tenure, changes in the benchmark, the customer's background and the applicable terms.

Nakul Saxena, Business Head, Mortgages, Kotak Mahindra Bank, said, "The recent policy decision is a reminder that interest rates keep going through different phases. The first few years after buying a home are often the most financially stressful for borrowers, because they are rebuilding their savings while managing many family responsibilities with a new EMI. The key question, then, is not whether rates will rise or fall, but how much uncertainty the household budget can comfortably absorb."

Saxena further said, "At the time of sanction, many borrowers insist on getting the lowest interest rate. But they should also think about what happens if rates rise over the next few years. For customers who prioritise certainty of repayment, a hybrid home loan can offer protection for a fixed period from both the EMI increase caused by a repo rate rise and a lengthening loan tenure."

Across interest rate cycles, the home loan with the lowest-looking rate today is not necessarily always the smartest choice. The best option may be the home loan that strikes a good balance between affordability, flexibility, certainty and long-term cost.