Loan for 20 years, EMIs for 24: RBI rate hikes leave borrowers in a fix

If a person took a 20-year home loan of Rs 50 lakh in April 2019, their number of EMIs will now be 60 more than the original because of the recent repo rate hikes

The continuous hikes in interest rates by the Reserve Bank of India (RBI) have led to a rise in tenure for home loans. The 20-year home loans are now 24 years long, a report by Economic Times (ET) said on Thursday. The borrowers who took long-term home loans 2-3 years ago have now seen a considerable hike in their equated monthly installments (EMIs), leading to elongation of the tenure. 

Since April, the RBI has hiked the repo rate four times by a cumulative 190 basis points (bps) to 5.9 per cent to tackle high inflation. Home loan rates, as a result, have gone up by nearly 140 basis points. They are expected to rise further by 50 basis points in the coming days, the ET report added. 

Therefore, if a person took a 20-year home loan of Rs 50 lakh in April 2019, their number of EMIs will now be 60 more than the original because of the rate hikes, ET said. This would increase their original tenure of 20 years to 22 years and 10 months. For a Rs 10 lakh loan for 20 years, the EMIs will now be Rs 1,200 more than the original. 

In its latest monetary policy announcement, RBI kept the inflation target for FY23 unchanged at 6.7 per cent. Governor Shaktikanta Das added that for the rest of the current financial year, the inflation is expected to stay above the upper tolerance limit of 6 per cent. 

"The inflation projection is retained at 6.7 per cent in 2022-23, with Q2 at 7.1 per cent, Q3 at 6.5 per cent, and Q4 at 5.8 per cent, with risks evenly balanced. CPI inflation is projected to further reduce to 5 per cent in Q1FY24," Das said. 

Experts have suggested that in the coming months, the RBI may keep hiking the repo rate. The US Federal Reserve (Fed) has also taken a similar stance on its rate hikes. 

In this, the ET report said that the borrowers can either pay higher EMIs to keep the tenure intact. Or, they can make a lump sum payment of the outstanding principal amount.