While the Reserve Bank of India (RBI) has kept the benchmark repo rate unchanged at 5.25% and has maintained a neutral stance on Friday, the risk of rates inching over time cannot be ignored. This makes the current window relatively favourable for locking in borrowing costs.
The central bank has cut the repo rate by 125 basis points since early 2025, which has brought down borrowing costs. With stable property prices, affordability has improved on both fronts. If input costs or interest rates begin to rise, this window
could narrow.
Inflation risks are beginning to resurface , and the policy approach by RBI in the coming quarters would be contingent on the extent of actual pass-through of oil price hikes on headline inflation.
Assess affordability
Those planning to buy a home should now assess affordability based on current rates and leave room for higher equated monthly installments (EMIs) in the future. Even a 50 basis point increase can raise the EMI on a Rs 75 lakh home loan by about Rs 2,500 a month and add nearly Rs 7.51 lakh to the overall repayment burden over a 25-year tenure.
A home purchase should remain comfortably affordable even if borrowing costs rise further over the coming years. As home loans are of higher amounts, keeping a low EMI-to-NMI (net monthly income) ratio is advised to maintain a buffer against rate hikes in future. The impact of a higher loan amount and rising rates can be reduced with a higher down payment. “If the purchase fits your budget and you expect to stay in the property for at least seven years, buying now may make sense. The decision should be driven by long-term housing needs rather than expectations of short-term price gains,” says Adhil Shetty, chief executive officer, Bankbazaar.
Review existing loan structure
Existing borrowers should review their loan structure and repayment strategy. Those with strong cash flows may consider making partial prepayments, as reducing the principal lowers the interest burden over the remaining tenure.
Borrowers considering a balance transfer should compare the interest savings against processing fees and other charges. Any refinancing decision should be based on a clear cost-benefit analysis rather than short-term rate movements.
Santosh Agarwal, chief executive officer, Paisabazaar, says existing borrowers with their loans still linked to the base rate or MCLR should periodically review their loan terms against prevailing market offers or they may end up servicing loans at higher interest rates due to higher spreads in many cases. “A strategically timed balance transfer to a repo rate-linked home loan can help lower the monthly repayment burden and aid in long-term savings,” says Agarwal.
Compare rates
Borrowers should compare offers from multiple lenders rather than accepting the first quote. “A strong credit score, stable income and lower loan-to-value ratio can improve negotiating power,” says Shetty.
Those planning to get a home loan can take steps to improve and maintain a very good credit score. A higher score signifies higher creditworthiness and may help get loans at a relatively lower interest rate and relaxed loan terms.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Investors should assess their financial goals, risk appetite and consult a qualified financial advisor before making investment decisions.
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