The Monetary Policy Committee raised the repo rate by 0.25%, from 5.25% to 5.50% on October 7, 2026, in a unanimous decision. It was the first hike since February 2023; the trigger was inflation. Consumer inflation hit 4.82% in August, above RBI's target of 4%.
For borrowers, the effect shows up instantly; repo-linked floating-rate loans can become costlier when the lender resets the rate, while fixed-rate loans do not change automatically.
When the reset takes place, your lender will offer you either of the two plans, pay a slightly higher EMI, or unaffected EMI for a longer tenure. One feels painless. The other quietly costs more.
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Let's understand this with the help of an example, for a Rs 50 lakh home loan over 20 years at 8.00%. The rate is hypothetical, not any specific bank's offer. The EMI is about Rs 41,822.
Suppose the rate rises by 0.25% to 8.25%.
Option A, higher EMI: The EMI rises to about Rs 42,600, roughly Rs 780 more per month. The tenure stays at 20 years, and total interest is about Rs 52.2 lakh.
Option B, longer tenure: The EMI stays at Rs 41,822, but the loan stretches to roughly 21 years (about 252 months). Total interest soars up to about Rs 55.4 lakh.
Option B looks gentler on the pocket for the short term, but it costs roughly Rs 3 lakh more than Option A. Compared with the original schedule, it costs about Rs 5 lakh more in interest. That is the price one has to pay for an extra year of EMIs.
A longer tenure of EMIs turns out to be a silent trap as the initial years of the loan goes majorly towards the interest payment rather than principle reduction.
The burden can become heavier if interest rates keep on rising, it can stretch a 20 year loan to a 25 year one. Longer tenure loans are not all bad, they do have a genuine use case if your budget does not permit a higher EMI payout increasing the tenure is the only option that suits you.
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The smartest way of dealing with the rate hike is paying a stepped up EMI if budget permits, if not then treating the tenure stretch as a temporary escape is the wise choice.
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