The Reserve Bank of India’s decision to raise the repo rate by 25 basis points to 5.50% has brought the cost of borrowing into sharper focus for homebuyers. With several banks already increasing their lending rates, borrowers with floating-rate home loans could see their equated monthly instalments (EMIs) rise or their loan tenures extend.
The RBI’s latest move, its first repo rate hike in nearly four years, came amid concerns over inflation, a weaker rupee and higher crude oil prices. While the increase is relatively modest, its impact becomes more relevant for homebuyers because housing loans are typically long-term commitments.
The transmission of the repo rate hike is already visible in lending rates. Punjab National Bank (PNB) has increased its Repo Linked Lending Rate (RLLR) from 8.10% to 8.35%, effective October 8, 2026, a rise of 25 basis points.
Bank of India has also revised its repo rate-based lending rate (RBLR) from 8.10% to 8.35%, effective October 7, 2026. Indian Bank has increased its RBLR from 7.95% to 8.20%.
For borrowers whose home loans are linked to these benchmark rates, the immediate question is how the increase will reflect in their monthly repayment burden.
What does a 25-basis-point hike mean for EMIs?
A higher lending rate can affect a home loan in two ways. Banks may increase the borrower’s EMI, extend the loan tenure, or make adjustments involving both, depending on the terms of the loan.
The actual impact will vary according to the outstanding loan amount, remaining tenure and applicable interest rate. Borrowers with larger outstanding balances and longer repayment periods are likely to be more sensitive to changes in interest rates.
The increase may appear small when viewed as a percentage point, but the cumulative impact can become meaningful over a long repayment period.
This is particularly relevant for new buyers entering the market during the festive season. Higher EMIs could affect the amount they are comfortable borrowing and, consequently, the price range of homes they consider.
Will higher EMIs affect housing demand?
The increase in borrowing costs comes at an important time for the residential market. The festive season typically sees stronger buyer activity, and developers often depend on this period to drive sales.
Real estate bodies CREDAI and NAREDCO expect the impact of the rate hike to remain limited, although they acknowledge that higher borrowing costs could weigh on some buyers.
CREDAI National President Shekhar Patel said the increase could have some impact on festive-season sales, even though underlying housing demand remains strong.
“We are also entering the festive season, which is an important period for the housing market, and the increase in borrowing costs could have some impact on sales during this period, although the underlying demand for housing remains strong,” Patel said.
The concern is likely to be greater for price-sensitive buyers. For households already operating close to their affordability limits, a higher EMI could prompt them to reconsider the size of the loan, negotiate harder on the property price or delay a purchase.
However, recent sales data indicate that housing demand remains resilient.
According to Anarock, housing sales across India’s seven major cities rose 3% annually to more than one lakh units during July-September. Sales in value terms increased 2% to around Rs 1.55 lakh crore from Rs 1.52 lakh crore in the corresponding period last year.
Long-term demand could cushion the impact
NAREDCO President Parveen Jain expects the impact on residential demand to remain contained. “We expect the impact of this increase on the residential market to remain limited, supported by strong buyer sentiment, festive demand and the long-term need for homeownership,” Jain said.
For existing borrowers, the impact will depend on how their lenders transmit the rate increase. For new borrowers, the higher lending rates will form part of the affordability calculation from the outset.
Patel also emphasised that homebuyers should consider interest rates over the full duration of a housing loan rather than focusing on a single rate cycle.
“A home loan is generally a commitment of at least 15 years. During that period, there will be times when rates go up and times when they come down,” he said.
The latest repo rate hike therefore does not necessarily signal a sharp slowdown in housing demand. But with PNB, Bank of India and Indian Bank already raising lending rates, the cost of financing a home has clearly moved higher.
For buyers, the festive season may now come with one additional calculation: not just whether they can afford the home, but whether they are comfortable with the EMI that comes with it.
