Repo rate hike and your home loan: why your bank stretched the tenure and what switching really costs

Rate hikes are polite. Nobody calls you. Your EMI often stays exactly the same, and your loan simply ends later. That quiet arithmetic is now playing out across Indian home loans, and it is worth ten minutes of your attention before the next policy meeting.

What happened

The RBI raised the repo rate by 25 basis points to 5.50% on October 7, Mint reported. State Bank of India followed by raising its external benchmark linked rate to 8.15% from 7.90%, effective October 15. Any home loan linked to that benchmark now costs more.

Savers got a smaller gift. ICICI Bank raised fixed deposit rates by 10 basis points on select tenures from October 23, taking its three to five year rate for general citizens to 6.60%, The Economic Times reported. Indian Bank lifted its 555 day Ind Grow deposit to 6.80%. SBI and HDFC Bank had not revised deposit rates at the time. Loans moved within about a week. Deposits are still thinking about it.

Why that asymmetry is not your imagination

An RBI study in the central bank's bulletin puts numbers on what borrowers have long suspected, News18 reported. Between March 2022 and January 2025, banks passed on 76.4% of a cumulative 250 basis point repo hike through contracted lending rates. In the easing cycle from February 2025 to March 2026, they passed on 64% of a 125 basis point cut.

On the weighted average lending rate, the 250 point hike lifted rates by 181 basis points, while the 125 point cut lowered them by 93. The researchers note that in easing cycles banks may protect margins by widening spreads or shifting towards higher yielding loans. Banks, it turns out, read the repo rate with great care in one direction.

The EMI versus tenure trap

Here is the part that costs real money. Mint worked through a Rs 50 lakh, 20 year loan. At 8%, the EMI is about Rs 41,822 and total interest about Rs 50.37 lakh. At 8.25% with the tenure unchanged, the EMI rises to about Rs 42,603 and total interest to about Rs 52.25 lakh.

If the bank keeps the EMI unchanged instead, the loan stretches to about 21 years and total interest rises to about Rs 55.33 lakh. That is roughly Rs 4.96 lakh more than the original plan. Kapil Makhija of MinEMI told Mint that the real damage happens when banks keep the EMI flat and quietly extend the tenure. His advice is to let a lower rate shorten your tenure when you can afford the EMI.

Our view is simple. If your bank has extended your tenure, ask it to raise the EMI instead, if your budget allows. A slightly bigger monthly bill is cheaper than an extra year of interest.

What switching costs

Older borrowers may be paying a higher spread than the bank offers new customers today. You can ask your bank to reset it, but there is a fee. Makhija told Mint banks typically charge 0.25% to 0.50% of the outstanding principal plus GST, though some charge a flat fee. On a Rs 60 lakh balance, 0.5% is Rs 30,000.

HDFC's schedule specifies 0.25% capped at Rs 5,000 plus taxes for certain fully drawn home loans. Kotak Mahindra Bank charges 0.5% capped at Rs 10,000 plus taxes for switching between floating schemes on certain loans, according to Siddharth Maurya of Vibhavangal Anukulakara. Add 18% GST on the fee, documentation charges and any stamp duty. Fixed rate loans generally cannot be repriced this way. Get a conversion quote from your bank and compare it with a balance transfer offer before you sign anything.

What may come next

Deutsche Bank expects the RBI to raise rates by another 25 basis points in December 2026 and 50 more in the first half of 2027, taking the repo rate to 6.25%, Mint reported. The bank expects CPI inflation to average 6% in October to December 2026 and says household inflation expectations have risen to 10% from 8% before the West Asia conflict. Its call is more hawkish than market expectations, so treat it as a scenario.

If it plays out, the tenure on a floating rate loan stretches again. Check your loan statement this month, not after the December meeting. Banks will not mind either way. That is rather the point.

Reading a loan statement is fieldwork of a kind. If you want the real version, with real people and real research on the ground, look at the FIELDWORK fellowship from Earth5R.

This is a general explainer, not advice for your specific loan.