On 7 October 2026 the RBI raised the repo rate by 25 basis points to 5.50%. If your home loan is floating, your bank will pass this on at your next reset, and it has two ways to do it: raise your EMI, or keep the EMI the same and stretch the loan. Most borrowers never choose. The bank chooses for them, usually the second.
Why banks prefer extending the tenure
A higher EMI shows up in your bank account and generates angry calls. A longer tenure shows up nowhere until you read the loan statement years later. It is also the more expensive option for you, because you keep paying interest on the outstanding balance for longer.
The maths on a 20-year loan, 8.25% to 8.50%
Take a ₹30 lakh loan with the full 20 years left. At 8.25% the EMI is ₹25,562. After a 0.25% hike, here is what each route costs:
- Raise the EMI: ₹26,035 a month, ₹473 more. Over 20 years that is about ₹1.13 lakh extra interest.
- Extend the tenure: EMI stays ₹25,562, but the loan runs about 12 months longer. Extra interest: about ₹3.10 lakh.
- Same hike, nearly three times the cost, only because of which lever was pulled.
The gap scales with the loan. On ₹50 lakh, raising the EMI costs ₹788 a month (about ₹1.89 lakh over the term); extending costs about ₹5.17 lakh. On ₹75 lakh it is ₹2.84 lakh against ₹7.76 lakh.
If your loan is already a few years old
The damage shrinks as the remaining term shrinks. A ₹50 lakh balance with 15 years left: ₹730 more a month, or about 6 extra months. A ₹30 lakh balance with 10 years left: ₹400 more a month, or about 2 extra months. Run your own balance and remaining months in the EMI calculator before deciding.
Check your new EMIYour rights at reset
Under the RBI's August 2023 rules on resetting floating-rate EMI loans, banks must tell you when the rate changes and how it affects your EMI or tenure, and give you the choice: a higher EMI, a longer tenure, a mix of the two, or prepaying. You can also ask to switch to a fixed rate, at the bank's charges. So the default is not final. Write to your branch or use the app's service request once the reset hits.
When extending the tenure makes sense
- Your monthly budget is genuinely tight and a missed EMI would cost far more than the extra interest.
- You plan to prepay soon anyway, from a bonus or a maturing FD, which pulls the tenure back.
- You are near retirement age and the bank caps the tenure, in which case a higher EMI may be your only route.
Frequently asked questions
- Is it better to increase the EMI or the tenure after a rate hike?
- If you can afford it, increasing the EMI. On a ₹30 lakh, 20-year loan the same 0.25% hike costs about ₹1.13 lakh via a higher EMI and about ₹3.10 lakh via a longer tenure.
- Can I choose, or does the bank decide?
- You can choose. RBI rules from August 2023 require banks to offer a higher EMI, a longer tenure, a mix, or prepayment at reset.
- When will my EMI change after the October 2026 hike?
- At your loan's next reset date. Repo-linked loans usually reset quarterly; MCLR loans reset once a year.
- When is the next RBI policy?
- The next MPC meeting is on 2 to 4 December 2026.