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Repo Rate Hike Impact on Home Loan EMIs: What Borrowers Need to Know
- •The Reserve Bank of India increased the repo rate by 25 basis points to 5.50 percent, but this does not cause an immediate jump in monthly EMIs.
- •Borrowers with floating-rate loans linked to an external benchmark like the repo rate will see the impact within one to three months depending on their reset cycle.
- •Older loans linked to the Marginal Cost of Funds Based Lending Rate take considerably longer to reflect policy rate changes, with reset periods capped at up to one year.
- •Lenders can manage rate increases through a combination of higher EMIs or extended loan tenures to help moderate immediate impacts on monthly cash flows.
Key Questions Answered
For floating-rate retail loans linked to an external benchmark like the repo rate, the impact can show up in the borrower's interest rate within the next one to three months, depending on the lender's reset cycle. However, a 25-basis-point hike does not cause an immediate jump in monthly outgo, and lenders may manage it through higher EMIs or longer tenures.
Under the Marginal Cost of Funds Based Lending Rate framework, banks can specify the reset date with a periodicity capped at one year. The MCLR prevailing on the disbursement date remains applicable until the next reset date, making the transmission timeline slower compared to external benchmark-linked loans.
The Reserve Bank of India raised the repo rate by 25 basis points to 5.50 percent on October 7. This rate hike followed concerns over inflationary pressures and rising global uncertainties.
