English Edition | 14 May, 2022, 08:41 PM IST | Print Edition

How much your home loan EMI will increase after

RBI's 40 bps repo rate hike
Synopsis
In an off-cycle meeting, RBI hiked key policy rates (repo rate and standing deposit facility) by 40 basis points. The hike was done to deal
with changing macroeconomic conditions and higher inflation. A hike in the repo rate would mean a hike in the interest of loans,
especially for home loan borrowers. The interest rate on home loans is linked to an external benchmark such as repo rate.

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In a surprise move, the Reserve Bank of India (RBI) hiked the repo rate and other
key policy rates by 40 basis points (100 basis points = 1%) on May 4, 2022. This is
good news for fixed deposit (FD) investors as interest rates on FD investors are
likely to continue rising. However, a hike in policy repo rate is bad news for
borrowers, especially home loan borrowers. This is because a hike in policy repo
rate means a hike in home loan interest rates.

If you are an existing home loan borrower, here is how your home loan EMI is
Banks are required to review and revise the
interest rates on loans linked to external likely to rise for different home loan amounts.

benchmarks at least once in every three months.

Loan amount Rs 30 lakh

Loan Amount (Rs) 30,00,000

Tenure (Years) 20

Current Interest Rate (%) 6.75

Current EMI (Rs) 22811

New Interest rate (%) 7.15

New EMI (Rs) 23530

Increase in EMI (Rs) 719

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Loan amount Rs 50 lakh

Loan Amount (Rs) 50,00,000

Tenure (Years) 20

Current Interest Rate (%) 7

Current EMI (Rs) 38,018

New Interest rate (%) 7

New EMI (Rs) 39,216
Increase in EMI (Rs) 1,198

Loan amount Rs 75 lakh

Loan Amount (Rs) 75,00,000

Tenure (Years) 20

Current Interest Rate (%) 6.75

Current EMI (Rs) 57027

New Interest rate (%) 7.15

New EMI (Rs) 58,825

Increase in EMI (Rs) 1798

Existing interest rate is taken from State Bank of India (SBI) website for a non-woman salaried borrower having CIBIL
score in the range of 750-799. Interest rates are for Regular SBI Term loans.

What do RBI rules say about home loan interest rates?

Effective from October 2019, the RBI has revised the rules related to home loan interest rates. As per the new rule, banks
are required to link their home loan interest rates to an external benchmark. Banks can choose any one of the external
benchmarks from the following:

a) RBI's repo rate

b) Government of India 3-month Treasury bill yield published by Financial Benchmarks India Pvt. Ltd. (FBIL)

c) Government of India 6-month Treasury bill yield published by FBIL

d) Any other benchmark interest rate published by FBIL

The final interest rate that will be levied on the personal or retail loan will be arrived as follows:

External benchmark rate (Any one of the above) + margin + risk premium.

Further, banks are required to review and revise the interest rates on loans linked to external benchmarks at least once in
every three months. Thus, any hike in external benchmark rate will lead to a hike in home loan interest rate as well
within three months.

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