When the Reserve Bank of India raised the repo rate by 25 basis points to 5.50% on 7 October 2026, many borrowers asked the same question: what happens to my EMI? This explainer answers it with an example. The numbers below are only an illustration with assumed interest rates, and not the rates that any bank is charging.
A basis point is one hundredth of a percentage point, so 25 basis points is a quarter of a percentage point. The repo rate is the rate at which the RBI lends to banks. Loans that are linked to the repo rate, which include most new floating-rate home loans, are priced as the repo rate plus a spread set by the lender, so an increase in the repo rate raises the loan rate by the same amount, usually after the next reset date.
Take a home loan of Rs 50 lakh over 20 years. Suppose the interest rate is 8.50%. The monthly EMI, calculated with the standard formula, comes to about Rs 43,391, and the borrower would pay a total of about Rs 1.04 crore over the 240 months, of which about Rs 54.1 lakh is interest. If the rate rises by 25 basis points to 8.75%, the EMI becomes about Rs 44,186, which is Rs 794 more every month, and total interest increases to about Rs 56.0 lakh.
That is a difference of roughly Rs 1.9 lakh over the life of the loan from a single quarter-point change, assuming that the rate stays at the new level and that the borrower keeps the tenure unchanged. Many banks adjust the tenure instead of the EMI when rates go up, so the borrower pays the same instalment for longer, and the effect on total interest is similar or larger.
Not all borrowers are affected at once. Loans linked to the repo rate typically reset at set intervals, and the source coverage of the policy said that interest rates on loans are likely to rise. Borrowers on fixed rates are not affected until the fixed period ends, and older loans linked to other benchmarks, such as a lender’s own lending rate, follow a different timetable. Borrowers should check their loan agreement or ask the lender for the reset date.
The effect can be lessened. A borrower can make a part-prepayment to reduce the principal, ask the bank to compare the rate with other lenders, or in some cases switch the loan to a lower-rate lender. Each of these has costs and conditions, such as processing fees, so it is important to compare the full cost before deciding. A larger down payment or a shorter tenure on a new loan also reduces total interest.
Savers are on the other side. When the repo rate rises, banks tend to raise deposit rates, though the pace varies. The central bank’s stance of “calibrated tightening” and Governor Sanjay Malhotra’s statement that policy action ahead can only be a rate hike or a pause suggest that rates will not fall soon, which matters for people choosing between fixed deposits and other savings.
Why did the RBI raise rates? It cited inflation pressures from volatile crude oil prices and other factors, and it projects consumer inflation of 5.2% for FY27. Retail inflation was 5.54% in September and wholesale inflation was 11.39%. Higher interest rates make borrowing more expensive, which tends to slow demand and reduce price pressure over time.
The example is simplified. Actual loans can include processing charges, insurance and different spreads, and EMIs are rounded by lenders. A borrower should use the lender’s own calculator or schedule for exact figures, and IndiaX24 does not give financial advice.
Featured image: A residential house in Mysore (file photo; a stand-in image for a home loan). Photo by Evan Lovely, licensed under CC BY 2.0, via Wikimedia Commons.
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