Home Loan EMI Increased By 25% in 6 Months

Home Loan EMI Increased By 25% in 6 Months, due to hike in Repo rate by Reserve Bank of India (RBI). Earlier all type of retail & MSME loans with the banks were switched to RLLR based interest rate and linked with repo rate during the start of this Financial year. Now, the Reserve Bank of India (RBI) in its monetary policy meeting held on December 7, 2022 has yet again hiked the repo rate by 0.35%. This is the fifth consecutive repo rate hike since May of this year.  

Due to hike in Repo Rate, the cumulative Interest rate on various loans including Home Loan, Mortgage loans have been increased by 2.25% since May this year. Existing borrowers, who have taken loans on repo linked RLLR based rate such as home loans, mortgage loans , will see their EMIs going up further due to the current repo rate hike.

Subsidizing the impact of rate hike on home loan borrowers, the banks were permitting the tenure extension to the existing loan borrowers, which may have been exhausted by now and they will be compelled to pay a higher EMI. The maximum repayment period under tenure extension can’t exceed 70 years of age or 30 years, whichever come earlier.

For example – Suppose Rs 25 lakh housing loan taken for 20 years in April this year with ROI of 6.75%, if the interest rate goes from 6.75% to 9.25% (with repo rate hike now), the EMI would go up from Rs 23,258 to around Rs 27,387 to repay the loan within the original tenure, which is an increase of 17.75%. However, if the tenure was 30 years, your EMI increase would be around 25%.

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Paying EMI with 2.28% higher EMI within half year period is really a mounting task for middle class family. This may lead to increase in the SMA figure of the banks and may impact the business income in long run.