What was the recent action taken by the Reserve Bank of India (RBI)?

The Reserve Bank of India (RBI) has increased the repo rate by 25 bps to 6.5 per cent. This will have an immediate impact on home loan EMIs.

How has the key benchmark lending rate changed over the past year?

The key benchmark lending rate has risen by 250 bps to 6.50 per cent since June last year, after hitting a bottom of 4 per cent in April 2020.

What effect does the repo rate hike have on home loan EMIs?

The hike in the repo rate makes borrowing cost more expensive, and therefore, increases the home loan EMIs by approximately 2-4 per cent.

What options do borrowers have in response to the hike in benchmark lending rates for home loans?

Borrowers have two options- continue with the ongoing repayment schedule with a higher EMI, or switch to a long tenure with the same EMI amount.

What is the default option for banks in this scenario?

The default option for banks is to increase the tenure of the loan.

What are the concerns for banks due to the recent hikes in home loan interest rates?

Due to the recent hikes, home loan interest rates have already crossed 9 per cent, which is a concerning point for many banks as the tenure of the home loan has already crossed the working age of 60 years.