Home Loan Borrowers May Face Longer Tenures Despite Stable EMIs

Purchasing a home is just the first step in a lengthy financial journey. For many first-time buyers, the real test begins after taking possession of the property, when monthly Equated Monthly Installments (EMIs) must be balanced with everyday expenses such as utilities, furnishing, education fees, and rebuilding savings.

In October 2026, the Reserve Bank of India (RBI) increased the repo rate by 25 basis points to 5.50%, signaling a shift toward calibrated tightening in its monetary policy. This move suggests that borrowing costs could rise in the near future depending on inflation and economic trends. Home loan borrowers, especially those with floating-rate loans, should be prepared for this potential increase.

However, an interest rate hike does not always translate into a higher monthly EMI. Lenders may choose to extend the loan tenure instead of increasing the EMI amount, depending on the loan agreement and how rate resets are implemented. This approach keeps monthly payments affordable but can result in a longer repayment period and higher total interest outgo over time.

Adhil Shetty, CEO of Bankbazaar, explains, "For home loan borrowers, this will show up as a higher EMI or a longer tenure, depending on the lender. Floating-rate loans linked to the repo rate usually reset within a few months. Many lenders extend the tenure to keep the EMI unchanged, which feels easier but costs more over time." This means that while monthly payments may appear manageable, borrowers could end up servicing their loans for many more years.

To illustrate, consider a borrower with a ₹1 crore loan taken for 25 years at an interest rate of 7.60%. The EMI in this scenario is roughly ₹74,550. If the interest rate climbs by 100 basis points to 8.60%, the EMI for the same loan and remaining tenure would rise to about ₹82,450, an increase of ₹7,900 monthly. For those already managing tight budgets, this additional expense may require cutting discretionary spending or delaying investments.

Alternatively, if the lender opts to keep the EMI steady, the repayment tenure will be extended, thus increasing the total interest paid over the life of the loan. The exact effect depends on factors such as the outstanding principal, remaining loan duration, rate reset policies, and lender-specific rules.

Smaller loans also feel the impact. A ₹75 lakh loan at 7.60% interest carries an EMI of approximately ₹55,900. With a 100 basis point rate increase, the EMI could rise to about ₹61,800, a jump of nearly ₹5,900 per month. These examples serve as general illustrations; actual loan costs vary based on individual lenders and how they adjust rates relative to the RBI's repo rate.

Early years after purchasing a home are financially challenging. Besides the down payment, buyers face expenses like stamp duty, registration fees, interior work, appliances, and moving costs. Some continue to pay rent or temporary accommodation charges while preparing the new home. Any unexpected increase in EMIs during this period could strain household finances. Even if the tenure is extended instead of raising EMIs, borrowers must understand the long-term implications on total interest and the age at which the loan will conclude.

One alternative gaining popularity is the hybrid home loan, which starts with a fixed-rate period followed by a floating-rate phase. For instance, Kotak Mahindra Bank offers a Hybrid Home Loan where borrowers can lock their interest rate for 39, 52, or 65 months. The EMI remains unchanged during this fixed phase, providing payment certainty even if the repo rate rises. After the fixed period, the loan switches to a floating rate linked to the repo rate plus a pre-agreed spread.

This hybrid model suits borrowers seeking predictable payments during the crucial early years of home ownership. However, once the fixed period ends, borrowers are exposed to market-driven rate fluctuations. Terms and eligibility criteria vary, so it is important to review the product details carefully before committing.

To give a sense of potential savings, Kotak Mahindra Bank’s example assumes an initial interest rate of 7.60% on loans of ₹1 crore and ₹75 lakh over 25 years, with a hypothetical 100 basis point increase during a 65-month fixed period. Under these conditions, hybrid borrowers would pay the original EMI, while floating-rate borrowers might see their EMIs rise significantly.

Before deciding on a home loan, prospective borrowers should ask themselves several key questions: Can their budget absorb a 1-2 percentage point increase in interest rates? What happens if the EMI remains unchanged—how much longer will the tenure be? How long does a fixed-rate period last in a hybrid loan, and how is the floating rate calculated afterward? Are there additional fees, prepayment penalties, or conversion charges? Lastly, is there an emergency fund to cover unforeseen expenses or temporary income disruptions?

Existing borrowers can request updated amortization schedules from their lenders to understand the impact of recent or anticipated rate changes on outstanding principal, tenure, and total interest payable.

Lower initial interest rates do not always guarantee the cheapest loan over time. A floating-rate loan with a low starting rate may become costly if rates rise sharply, while fixed or hybrid loans offer payment stability but could be more expensive if rates fall. Nakul Saxena, Business Head – Mortgages at Kotak Mahindra Bank, emphasizes the need to consider how much payment uncertainty a household can handle, especially during the demanding early years after buying a home.

As the RBI’s recent policy change highlights, interest rates move in cycles. Homebuyers and existing borrowers should plan their finances accordingly, weighing the benefits and risks of different home loan structures to make informed choices that fit their long-term financial goals.