Just a few hours after the Reserve Bank of India increased the repo rate by another 50 basis points (100 bps = 1%) by the Reserve Bank of India (RBI), mortgage lender HDFC Ltd, too hiked its loan interest rates on September 30, 2022.

As a BSE notification by HDFC, “HDFC increases its Retail Prime Lending Rate (RPLR) on housing loans, on which its adjustable rate home loans (ARHL) are benchmarked, by 50 basis points, with effect from October 1, 2022.”
With a hike in home loan interest rate, the EMIs that will be deducted from your bank account every month also also increase.

However, the question is after the latest increase in home loan interest rate by 50 bps, how much will HDFC loan borrower’s EMIs rise?

Let us take an illustration to see how much EMIs will increase. Suppose Mr A has taken a home loan of Rs 50 lakh. The new interest rate that will be effective on the home loan is 8.40% per annum. Earlier, the interest rate charged was 7.90%. The tenure of the loan is 25 years.

The interest rate is applicable to other borrowers (other than woman) for home loan amount between Rs 30 lakh and Rs 75 lakh.

What RBI rules say about fixing of interest rate on home loans
Effective from October 1, 2019, the RBI has asked the banks to link the home loan interest rates to an external benchmarking interest rate. The external benchmark can be any one of the following:

• RBI’s repo rate
• Govt of India’s 3-month or 6-month Treasury Bill Yields published by Financial Benchmarks India Pvt. Ltd. (FBIL)
• Any other benchmark market interest rate published by FBIL.

The interest rate under the external benchmark lending guidelines will be reveiwed and reset in atleast every three months. The banks are free to charge margin over the external benchmark lending rate.

Why did RBI hike repo rate
The RBI has hiked the repo rate 4 times consecutively since May 2022. The central bank has hiked the repo rate by 1.90% till date during the financial year. The hike in repo rate has been mainly due to inflation remaining more than 6%. This is above the tolerance band that has been set by the government for the RBI.