Home loan tenures jump to over 50 years on rate hikes

Those who opted for floating interest rates now face inflated EMIs or longer loan tenures

- Shipra Singh

Home loan borrowers are aghast. The recent rate hikes by the Reserve Bank of India (RBI) has multiplied the misery of those who had opted for a floating interest rate on their loans. They now face a manifold increase in loan tenure or need to shell out more money for their equated monthly instalments (EMIS) to stick to the original loan tenure. "My bank wants me to keep paying my home loan till I'm in my mid-70s. It has increased the loan tenure from the original 230 months term to 345 months," says 43-year-old Ravi Korukonda, a resident of Hyderabad.

The interest on floating-rate home loans has risen in tandem with the increase in repo rate over the last 18 months. Since October 2019, all retail loans have been linked to an external benchmark, with repo rate being the most common benchmark used by lenders, and interest rates on such loans move up and down as per the benchmark. So, as the RBI cumulatively hiked the repo rate by 225 basis points (bps) since May 2022, banks have been quick to pass on these increased rates to home loan borrowers. One basis point is one-hundredth of a percentage point.

Currently, the interest rate on Korukonda’s home loan is 9%. He had taken the loan in 2019 when the rate was just 7.25%.

In Bangalore, Albert Arul Prakash Rajendran, 42, says that even after paying back nearly ₹14 lakh of his outstanding loan amount in the last two years, he is back to square one with the increased interest rate. “My loan term is back to the original duration of 15 years," he says. Rajendran’s home loan was sanctioned at 6.5% in 2021 and the current interest rate on it is 9%.

Korukonda and Rajendran’s cases are not isolated. Most home loan borrowers are feeling the sting of increased loan rates on their finances either in the form of inflated EMIs or longer tenures, which can impact their other long-term financial goals.