As Interest Rates Rise, New Homebuyers Face a Hidden Risk: Longer Loans and Higher Borrowing Costs

MUMBAI | 22nd OCTOBER 2026 | The recent increase in the Repo Rate by the Reserve Bank of India has brought home loan EMIs back into focus. The Repo Rate was raised by 25 basis points to 5.50%, with the RBI also shifting its policy stance to calibrated tightening, signalling a turn in the interest-rate cycle.

While much of the discussion around rising rates focuses on EMI increases, there is another challenge that many borrowers overlook: the impact of rate hikes on loan tenure and total borrowing costs.

For most homebuyers, purchasing a home is the largest financial commitment of their lives. Beyond the down payment, they also incur expenses such as stamp duty, registration charges, interiors, furnishings and moving costs. As a result, the first few years after buying a home are often among the most financially demanding.

Yet, many borrowers continue to choose floating-rate home loans because they appear marginally cheaper at the time of sanction.

When interest rates rise, floating-rate borrowers are typically faced with two choices:

• Absorb the increase through a higher EMI; or
• Keep the EMI unchanged and allow the loan tenure to extend, increasing the overall borrowing cost over time.

Even after the latest increase, the Repo Rate remains 100 basis points below the 6.50% level seen during the previous rate cycle, highlighting how significantly interest rates can move during the life of a long-tenure home loan.

Protecting the Most Financially Sensitive Years

As homebuyers navigate a rising-rate environment, there is growing interest in solutions that provide greater certainty over monthly repayments.

The Kotak Mahindra Bank Hybrid Home Loan allows eligible customers to lock their home-loan interest rate for 39, 52 or 65 months at pricing comparable to the Bank’s floating-rate home loan offering, with no separate premium for choosing the hybrid structure. During the selected period, both the interest rate and EMI remain unchanged even if the Repo Rate rises. After the fixed period, the loan transitions to a floating-rate structure linked to the Repo Rate plus a predefined spread disclosed at sanction.

Illustrative EMI Comparison: Impact of a 100 bps Repo Rate Increase Over 65 Months

 Illustration for explanatory purposes only. Assumes home loans of ₹1 crore and ₹75 lakh with a 25-year tenure, a fixed interest rate of 7.60%, a 65-month fixed-rate period and a cumulative 100 basis point increase in the Repo Rate from 5.50% to 6.50% during that period. A Repo Rate of 6.50% was the highest level seen during the previous rate cycle. Actual outcomes will vary depending on loan amount, tenure, benchmark movements, customer profile and applicable terms and conditions.

Nakul Saxena, Business Head – Mortgages, Kotak Mahindra Bank, said: “The latest policy decision is a reminder that interest rates move through cycles. The first few years after buying a home are often the most financially demanding for borrowers as they are rebuilding savings while managing multiple household commitments alongside a new EMI. In such an environment, the key question is not whether rates will rise or fall, but how much uncertainty a household budget can comfortably absorb.”

He added: “Many borrowers focus on securing the lowest rate at the time of loan sanction. However, they should also consider what happens if interest rates rise over the next few years. For customers who value repayment certainty, a hybrid home loan can provide a defined period of protection from both EMI increases and tenure extensions arising from Repo Rate hikes.”

As interest rates move through cycles, the smartest home loan may not always be the one with the lowest headline rate today. It may be the one that best balances affordability, flexibility, certainty and long-term cost.

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