RBI Repo Rate Hike: CA Sarthak Ahuja Warns Home Loan Borrowers Against This Costly Mistake

If you have a floating-rate home loan, your next EMI could soon become more expensive. While a small increase in interest rates may not seem significant at first, it can have a major impact on the total amount you pay over the life of your loan.

Finance influencer CA Sarthak Ahuja recently broke down how a repo rate hike can affect borrowers and why choosing the right repayment option could save lakhs of rupees in interest.

Repo Rate Hike Explained:

The Reserve Bank's latest repo rate increase from 5.25% to 5.5% means borrowing costs for many floating-rate loans are likely to rise by 0.25%.

For example, if your home loan interest rate was previously 7.5%, it may now move up to 7.75%. As a result, borrowers are generally left with two choices. They can either increase their monthly EMI to keep the original loan tenure intact or maintain the same EMI and allow the loan tenure to extend.

The Hidden Cost Of Keeping EMIs Unchanged:

According to CA Sarthak Ahuja, many banks automatically increase the loan tenure instead of raising the EMI. While this may appear convenient, it often results in significantly higher interest payments over time.

He explained the impact using a Rs 1 crore home loan with a 20-year tenure. At an interest rate of 7.5%, the EMI works out to around Rs 80,559, while the total interest paid over the loan period is approximately Rs 93 lakh. When the rate rises to 7.75% and the tenure remains unchanged, the EMI increases by roughly Rs 1,500 per month. In this scenario, the total interest payout rises to about Rs 97 lakh.

Why Paying A Little More Can Save A Lot:

The bigger problem arises when borrowers choose to keep the EMI unchanged and extend the tenure. Using the same loan example, maintaining an EMI of around Rs 80,500 while increasing the tenure by about a year can push the total interest payout to nearly Rs 1.03 crore. That means borrowers could end up paying roughly Rs 6 lakh more in interest compared to simply increasing their monthly EMI by Rs 1,500.

What Borrowers Should Do:

CA Sarthak Ahuja advises borrowers to check with their bank after every rate revision and understand how the change is being applied. If financially possible, increasing the EMI instead of extending the loan tenure can help reduce long-term interest costs and shorten the journey to becoming debt-free. A small increase in monthly payments today could translate into substantial savings tomorrow.

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