Home loan EMIs may rise in 2026: Two options borrowers can consider before RBI's October policy

Home loan borrowers would do well to rework their monthly budgets over the coming weeks as experts expect the Reserve Bank of India (RBI) to raise the repo rate in its upcoming monetary policy meets in October and December.

SBI Research recently predicted that the RBI may raise the repo rate twice before the year is out, a move that would push up EMIs on repo-linked home loans.

In its latest Ecowrap report dated September 15, SBI Research made the case for two 25-basis-point increases in the repo rate, one each at the October and December meetings of the Monetary Policy Committee (MPC).

"Time to build moats through a 25-bps hike in October and Dec MPC each, and then to pause and take stock with upcoming data," said the report authored Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.

SBI Research's repo rate hike prediction is based on inflation. Retail inflation, based on the new CPI base, rose to 4.82% in August from 4.45% in July, on the back of a broad-based increase across almost all divisions. Food inflation climbed to 5.66%, while the core inflation hardened to 4.16% from 3.87%.

"Our study of data till Aug'26, indicates that the process of inflation getting generalized has started," the report said. It noted that the number of commodities explaining 90% of the CPI's weighted contribution has risen from 22 in January to 51 in August.

The bond market is also sending a similar signal. With the 10-year benchmark yield already steepening towards 7.10%, the report warned that "there is a genuine threat of yields vaulting towards 7.25% First, and then inching towards ~7.50%". Rising benchmark yields feed directly into borrowing costs across the economy, from corporate bonds to home loans.

Two options for home loan borrowers

For home loan borrowers on external-benchmark linked, or repo-linked, floating rates, rate hike would result in higher EMIs or longer loan tenures.

if the SBI Research's prediction gets right, a cumulative 50-basis-point increase would pass through at the next two rate reset. Home loan calculator shows that on a ₹50 lakh loan with a 20-year tenure at 8.5%, the EMI would climb from about ₹43,400 to roughly ₹45,000, nearly ₹1,600 more every month, and about ₹3.8 lakh in additional interest over the full tenure. This is where the two options come in.

While full prepayment may not be feasible for all, borrowers may take the benefit of the current low rates to make partial prepayment and reduce their loan principal. Using surpluses such as bonuses or maturing deposits to pay down a chunk of the principal will reduce the outstanding on which future, higher rates will be charged.

Even one extra EMI worth of prepayment a year can shave years off a long-tenure loan, and acting before the hikes take effect would help more than doing it later.

Borrowers who find a higher EMI unaffordable may ask their lender to extend the tenure, which will lower the monthly outgo, or keep it same as now, even after a rate hike. However, it will increase the total interest paid over the life of the loan.

Borrowers with some additional amount in hand can do the opposite and keep the tenure short. They may even ask the lender to increase their EMI amount instead of loan tenure in case of rate hikes in the future.