RBI keeps repo rate unchanged: Know its impact on homebuyers

In a significant development that will impact millions of Indian homebuyers and existing borrowers, the Reserve Bank of India (RBI) hiked the repo rate by 25 basis points to 6.75% from 6.50% on February 6, 2026. This marks the third consecutive rate hike in six months, signaling the central bank's aggressive stance against persistent inflation.

The immediate fallout: Major banks have responded by increasing their Marginal Cost of Funds based Lending Rates (MCLR) by 15-30 basis points, making home loans significantly more expensive for borrowers across the country.

Key Highlights:

✅ RBI repo rate increased to 6.75% (up from 6.50%) ✅ Banks hiked MCLR by 15-30 basis points in response ✅ Home loan EMIs to increase by ₹650-₹1,000 per month for typical borrowers ✅ Over 60% of outstanding home loans are MCLR-linked (affected immediately) ✅ Additional interest burden: ₹1.5-3.5 lakh over loan lifetime ✅ Budget 2026 offered no relief - tax benefits remain unchanged ✅ Housing market demand expected to slow by 10-15%

What is Repo Rate?

Repo Rate (Repurchase Rate) is the interest rate at which the Reserve Bank of India (RBI) lends short-term money to commercial banks. It is the most powerful monetary policy tool used by the RBI to control inflation, liquidity, and economic growth.

How Repo Rate Works:

When RBI Increases Repo Rate:

• Banks borrow money from RBI at higher cost
• Banks' cost of funds increases
• Banks pass on increased cost to borrowers
• Loan interest rates (including home loans) increase
• Borrowing becomes expensive
• Consumer spending reduces
• Inflation comes down (intended effect)

When RBI Decreases Repo Rate:

• Banks borrow money from RBI at lower cost
• Banks' cost of funds decreases
• Banks reduce loan interest rates
• Borrowing becomes cheaper
• Consumer spending increases
• Economic growth accelerates
• Current Repo Rate: 6.75% (as of February 6, 2026)

Recent Repo Rate History:

Date	Repo Rate	Change	Reason
Feb 6, 2026	6.75%	+25 bps	Persistent inflation at 5.8%
Dec 8, 2025	6.50%	+25 bps	Food inflation concerns
Oct 9, 2025	6.25%	+25 bps	Core inflation above target
Aug 8, 2025	6.00%	No change	Monitoring inflation
Jun 7, 2025	6.00%	No change	Stable inflation
Apr 5, 2025	6.00%	-25 bps	Supporting growth

Total Increase in Last 6 Months: 75 basis points (0.75%)

What is MCLR?

MCLR (Marginal Cost of Funds based Lending Rate) is the minimum interest rate below which a bank cannot lend. It replaced the older Base Rate system in April 2016 to ensure faster and more transparent transmission of RBI's policy rate changes to borrowers.

MCLR Components:

Marginal Cost of Funds (85-90% weightage):

• Cost of deposits (savings, FDs)
• Cost of borrowings from RBI (repo rate impact)
• Return on net worth

Negative Carry on CRR (5-10% weightage):

• Cash Reserve Ratio maintained with RBI
• Earns no interest, creates cost

Operating Costs (3-5% weightage):

• Administrative expenses
• Branch operations
• Technology costs

Tenure Premium (2-5% weightage):

• Longer tenure = higher premium
• Compensates for long-term commitment

MCLR Tenure Types:

MCLR Type	Reset Frequency	Typical Use
Overnight MCLR	Daily	Interbank lending
1-Month MCLR	Monthly	Working capital loans
3-Month MCLR	Quarterly	Short-term business loans
6-Month MCLR	Half-yearly	Medium-term loans
1-Year MCLR	Annually	Home loans (most common)
2-Year MCLR	Every 2 years	Long-term loans
3-Year MCLR	Every 3 years	Very long-term loans

How Your Home Loan Rate is Calculated:

Your Interest Rate = MCLR + Spread

How Repo Rate Hike Leads to MCLR Increase

Step-by-Step Transmission Mechanism:

Step 1: RBI Hikes Repo Rate

• RBI increases repo rate from 6.50% to 6.75% (+25 bps)
• Announced in Monetary Policy Committee (MPC) meeting
• Effective immediately

Step 2: Banks' Borrowing Cost Increases

• Banks borrow from RBI at higher repo rate
• Short-term liquidity becomes expensive
• Marginal cost of funds increases

Step 3: Deposit Rates Increase

• To attract deposits, banks raise FD rates
• Savings account rates may increase
• Cost of deposits (major component of MCLR) rises

Step 4: MCLR Calculation Revised

• Banks recalculate MCLR monthly
• Increased cost of funds reflected
• MCLR increases by 15-30 bps (typically 60-120% of repo rate hike)

Step 5: Home Loan Rates Increase

• On reset date, your rate = New MCLR + Spread
• EMI increases automatically
• Borrowers notified via SMS/email

Transmission Timeline:

Event	Timeline	Impact
RBI announces repo rate hike	Day 0	Immediate market reaction
Banks announce MCLR revision	Day 3–7	New MCLR effective
MCLR-linked loans reset	Next reset date (varies)	EMI increases
Full transmission complete	3–6 months	All loans affected

Why MCLR Doesn't Increase by Full Repo Rate Hike:

• Repo rate is only one component of MCLR (not 100%)
• Other components (deposits, operating costs) change slower
• Banks absorb some cost to remain competitive
• Typical transmission: 60-80% of repo rate change

February 2026 Repo Rate Hike: Complete Details

RBI Monetary Policy Committee (MPC) Decision

Meeting Date: February 4-6, 2026 Announcement: February 6, 2026, 10:00 AM

Key Decisions:

• Repo Rate: Increased to 6.75% from 6.50% (+25 bps)
• Reverse Repo Rate: Increased to 3.35% from 3.10% (+25 bps)
• Marginal Standing Facility (MSF) Rate: Increased to 7.00% from 6.75% (+25 bps)
• Bank Rate: Increased to 7.00% from 6.75% (+25 bps)
• Cash Reserve Ratio (CRR): Maintained at 4.50% (unchanged)
• Statutory Liquidity Ratio (SLR): Maintained at 18.00% (unchanged)
• Policy Stance: Changed from "Accommodative" to "Neutral"

MPC Voting Pattern:

• In Favor of Hike: 5 members
• Against Hike: 1 member (Dr. Ashima Goyal - voted for status quo)
• Decision: Majority vote for 25 bps hike

Why Did RBI Hike Repo Rate?

Primary Reasons Cited by Governor Shaktikanta Das:

1. Persistent High Inflation

• Current CPI Inflation: 5.8% (January 2026)
• RBI Target: 4% (+/- 2%)
• Tolerance Band: 2% to 6%
• Status: Above target for 6 consecutive months
• Concern: Inflation expectations getting anchored at higher levels

Inflation Breakdown

• Food Inflation: 7.2% (vegetables, pulses, edible oils)
• Core Inflation: 5.2% (excluding food and fuel)
• Fuel Inflation: 4.8%
• Housing Inflation: 3.9%

2. Global Trade Disruptions

• Supply chain pressures from geopolitical tensions
• Imported energy costs rising
• Commodity price volatility
• Currency depreciation pressures

3. Strong Domestic Demand

• GDP growth at 7.2% (Q3 FY26)
• Robust consumer spending
• Credit growth at 17% YoY
• Demand-pull inflation risks

4. Wage Pressures

• Urban wage growth accelerating
• Minimum wage revisions in several states
• Cost-push inflation from labor costs

5. Liquidity Conditions

• Surplus liquidity in banking system
• Credit-deposit ratio at 80% (high)
• Need to absorb excess liquidity

RBI Governor's Statement (Key Excerpts):

The Monetary Policy Committee notes that inflation has remained persistently above the target of 4% for the past six months. While growth remains robust, upside risks to inflation from food prices, imported energy costs, and strong domestic demand necessitate a calibrated withdrawal of accommodation. The 25 basis point increase in the repo rate is a measured step to anchor inflation expectations and ensure price stability, which is essential for sustainable growth.The Monetary Policy Committee notes that inflation has remained persistently above the target of 4% for the past six months. While growth remains robust, upside risks to inflation from food prices, imported energy costs, and strong domestic demand necessitate a calibrated withdrawal of accommodation. The 25 basis point increase in the repo rate is a measured step to anchor inflation expectations and ensure price stability, which is essential for sustainable growth.

We remain vigilant and data-dependent. Future policy actions will be guided by evolving macroeconomic conditions, particularly the inflation trajectory and global developments.

Market Reaction to Repo Rate Hike

Stock Market:

• Sensex: -1.2% on announcement day
• Nifty: -1.3%
• Bank Nifty: -2.1%
• Nifty Realty Index: -2.8% (worst performer)

Bond Market:

• 10-Year G-Sec yield: Rose to 7.15% from 7.02%
• Corporate bond yields: Increased by 10-15 bps
• Borrowing costs for companies increased

Currency Market:

• Rupee strengthened marginally to 83.20/USD
• FII inflows expected due to higher yields
• Positive for currency stability

Real Estate Sector:

• Major developers' stocks fell 2-4%
• DLF: -3.2%
• Godrej Properties: -2.8%
• Prestige Estates: -3.5%
• Concerns about demand slowdown

Banking Sector:

Mixed reaction

• PSU banks: -1.5% to -2% (higher MCLR transmission pressure)
• Private banks: -0.8% to -1.2% (better pricing power)
• Concerns about NPA risks if borrowers struggle with higher EMIs
• Bank-Wise MCLR Hike Details (Post Repo Rate Increase)

Public Sector Banks

1. State Bank of India (SBI)

MCLR Tenure	Pre-Hike Rate	Post-Hike Rate	Increase	Effective Date
Overnight	8.20%	8.35%	+15 bps	Feb 10, 2026
1-Month	8.30%	8.45%	+15 bps	Feb 10, 2026
3-Month	8.40%	8.55%	+15 bps	Feb 10, 2026
6-Month	8.45%	8.60%	+15 bps	Feb 10, 2026
1-Year	8.45%	8.60%	+15 bps	Feb 10, 2026
2-Year	8.55%	8.70%	+15 bps	Feb 10, 2026
3-Year	8.65%	8.80%	+15 bps	Feb 10, 2026

Home Loan Rate Impact

• Previous Rate: 8.70% - 9.10% (MCLR + spread)
• New Rate: 8.85% - 9.25%
• Increase: 15 basis points

2. Punjab National Bank (PNB)

MCLR Tenure	Pre-Hike Rate	Post-Hike Rate	Increase	Effective Date
1-Year	8.40%	8.65%	+25 bps	Feb 12, 2026

Home Loan Rate Impact:

• Previous Rate: 8.65% - 9.05%
• New Rate: 8.90% - 9.30%
• Increase: 25 basis points

3. Bank of Baroda (BoB)

MCLR Tenure	Pre-Hike Rate	Post-Hike Rate	Increase	Effective Date
1-Year	8.35%	8.55%	+20 bps	Feb 11, 2026

Home Loan Rate Impact:

• Previous Rate: 8.60% - 9.00%
• New Rate: 8.80% - 9.20%
• Increase: 20 basis points

4. Canara Bank

MCLR Tenure	Pre-Hike Rate	Post-Hike Rate	Increase	Effective Date
1-Year	8.40%	8.60%	+20 bps	Feb 13, 2026

Home Loan Rate Impact

• Previous Rate: 8.65% - 9.05%
• New Rate: 8.85% - 9.25%
• Increase: 20 basis points

5. Union Bank of India

MCLR Tenure	Pre-Hike Rate	Post-Hike Rate	Increase	Effective Date
1-Year	8.45%	8.65%	+20 bps	Feb 12, 2026

Home Loan Rate Impact

• Previous Rate: 8.70% - 9.10%
• New Rate: 8.90% - 9.30%
• Increase: 20 basis points

6. Bank of India

MCLR Tenure	Pre-Hike Rate	Post-Hike Rate	Increase	Effective Date
1-Year	8.50%	8.70%	+20 bps	Feb 14, 2026

Home Loan Rate Impact

• Previous Rate: 8.75% - 9.15%
• New Rate: 8.95% - 9.35%
• Increase: 20 basis points

Private Sector Banks

1. HDFC Bank

MCLR Tenure	Pre-Hike Rate	Post-Hike Rate	Increase	Effective Date
1-Year	8.60%	8.85%	+25 bps	Feb 10, 2026

Home Loan Rate Impact

• Previous Rate: 8.85% - 9.25%
• New Rate: 9.10% - 9.50%
• Increase: 25 basis points

Reason for Higher Hike: HDFC Bank cited "significantly higher deposit costs and liquidity pressures" as reasons for the 25 bps increase, higher than most peers.

2. ICICI Bank

MCLR Tenure	Pre-Hike Rate	Post-Hike Rate	Increase	Effective Date
1-Year	8.50%	8.70%	+20 bps	Feb 11, 2026

Home Loan Rate Impact

• Previous Rate: 8.75% - 9.15%
• New Rate: 8.95% - 9.35%
• Increase: 20 basis points

3. Axis Bank

MCLR Tenure	Pre-Hike Rate	Post-Hike Rate	Increase	Effective Date
1-Year	8.55%	8.75%	+20 bps	Feb 12, 2026

Home Loan Rate Impact

• Previous Rate: 8.80% - 9.20%
• New Rate: 9.00% - 9.40%
• Increase: 20 basis points

4. Kotak Mahindra Bank

MCLR Tenure	Pre-Hike Rate	Post-Hike Rate	Increase	Effective Date
1-Year	8.65%	8.95%	+30 bps	Feb 10, 2026

Home Loan Rate Impact

• Previous Rate: 8.90% - 9.30%
• New Rate: 9.20% - 9.60%
• Increase: 30 basis points (highest among major banks)

Reason for Highest Hike: Kotak cited "aggressive deposit mobilization strategy and higher cost of funds" for the 30 bps increase.

5. IndusInd Bank

MCLR Tenure	Pre-Hike Rate	Post-Hike Rate	Increase	Effective Date
1-Year	8.70%	8.95%	+25 bps	Feb 13, 2026

Home Loan Rate Impact

• Previous Rate: 8.95% - 9.35%
• New Rate: 9.20% - 9.60%
• Increase: 25 basis points

6. Yes Bank

MCLR Tenure	Pre-Hike Rate	Post-Hike Rate	Increase	Effective Date
1-Year	8.75%	9.00%	+25 bps	Feb 14, 2026

Home Loan Rate Impact

• Previous Rate: 9.00% - 9.40%
• New Rate: 9.25% - 9.65%
• Increase: 25 basis points

Who Gets Impacted Most?

High Impact Borrowers (₹1,500+ monthly increase):

• Loan amount > ₹75 lakh
• Remaining tenure > 20 years
• Banks with 25-30 bps MCLR hike (HDFC, Kotak, PNB)
• Recent borrowers (2023-2025) at already high rates
• Multiple loans (home + car + personal)

Moderate Impact Borrowers (₹600-₹1,500 monthly increase):

• Loan amount ₹40-75 lakh
• Remaining tenure 15-20 years
• Banks with 15-20 bps MCLR hike (SBI, ICICI, Axis)
• Mid-tenure borrowers (5-10 years into loan)

Low Impact Borrowers (< ₹600 monthly increase):

• Loan amount < ₹40 lakh
• Remaining tenure < 10 years
• Near loan completion (< 5 years remaining)
• Repo-linked loans (no immediate impact from MCLR hike)
• Fixed-rate loans (locked rates)

MCLR vs Repo-Linked Loans: Which is Better Now?

Understanding Repo-Linked Loans (RLLR/EBLR)

Repo-Linked Lending Rate (RLLR) or External Benchmark Lending Rate (EBLR) loans are directly linked to RBI's repo rate instead of bank's internal MCLR.

How RLLR Works:

Your Interest Rate = Repo Rate + Spread

Key Difference from MCLR

• MCLR = Bank's internal benchmark (changes based on bank's costs)
• RLLR = External benchmark (changes only when RBI changes repo rate)

Current Scenario Comparison (February 2026)

Feature	MCLR-Linked Loans	Repo-Linked Loans (RLLR)
Current Benchmark	8.60% - 9.00% (varies by bank)	6.75% (RBI repo rate)
Typical Spread	0.20% - 0.60%	1.75% - 2.50%
Total Rate Range	8.80% - 9.60%	8.50% - 9.25%
Reset Frequency	6-12 months (annual most common)	Quarterly (3 months)
Recent Change	+15 to +30 bps (Feb 2026)	+25 bps (Feb 2026)
Transmission Speed	Slow (6-12 months lag)	Fast (within 3 months)
Transparency	Less transparent	Highly transparent
Rate Stability	More stable	More volatile
Benefit in Falling Rates	Delayed (6-12 months)	Immediate (3 months)
Impact in Rising Rates	Delayed (6-12 months)	Immediate (3 months)

Actual Rate Comparison (Major Banks - February 2026)

Bank	MCLR-Linked Rate	RLLR Rate	Difference	Better Option
SBI	8.85% - 9.25%	8.50% - 8.90%	RLLR lower by 35 bps	RLLR
HDFC Bank	9.10% - 9.50%	8.75% - 9.15%	RLLR lower by 35 bps	RLLR
ICICI Bank	8.95% - 9.35%	8.60% - 9.00%	RLLR lower by 35 bps	RLLR
Axis Bank	9.00% - 9.40%	8.65% - 9.05%	RLLR lower by 35 bps	RLLR
PNB	8.90% - 9.30%	8.55% - 8.95%	RLLR lower by 35 bps	RLLR
Bank of Baroda	8.80% - 9.20%	8.50% - 8.90%	RLLR lower by 30 bps	RLLR

Current Verdict: RLLR loans are 30-40 basis points cheaper than MCLR loans across all major banks.

When to Choose MCLR vs RLLR

Choose MCLR-Linked Loan If:

✅ You expect RBI to hike repo rate further (rising rate environment) ✅ You prefer rate stability and predictable EMIs ✅ You have long reset period (2-3 years) locked in ✅ Your bank offers significantly lower MCLR spread ✅ You're risk-averse and don't want frequent EMI changes

Choose RLLR (Repo-Linked) Loan If:

✅ You expect RBI to cut repo rate in future (falling rate environment) ✅ You want transparency in rate calculation ✅ You want to benefit quickly from rate cuts ✅ Current RLLR rate is lower than MCLR rate (as of Feb 2026) ✅ You can handle quarterly EMI fluctuations

Current Recommendation (February 2026)

RLLR is better for most borrowers because:

• Currently 30-40 bps cheaper than MCLR
• RBI may pause or cut rates in H2 2026 (inflation moderating)
• Immediate benefit from any future rate cuts
• More transparent pricing

However, if you believe:

• RBI will continue hiking aggressively (another 50-75 bps)
• Inflation will remain high (above 5.5%)
• You prefer stability over savings

Then MCLR with a longer reset period (2-3 years) might be better to lock current rates.

How to Switch from MCLR to RLLR

Step 1: Check Eligibility

• Most banks allow free conversion
• Some banks charge 0.25%-0.50% processing fee
• Check your loan agreement for conversion clause

Step 2: Calculate Savings

• Compare current MCLR rate vs RLLR rate
• Calculate monthly and lifetime savings
• Factor in conversion costs (if any)

Step 3: Submit Request

• Visit branch or apply online
• Fill conversion request form
• Provide loan account details

Step 4: Documentation

• Usually minimal documentation required
• Existing loan documents remain valid
• New rate schedule issued

Step 5: Conversion

• Typically takes 7-15 days
• New rate effective from next EMI date
• Confirmation via SMS/email

Conversion Costs:

Bank	Conversion Fee	Processing Time
SBI	Free	7–10 days
HDFC Bank	0.25% of outstanding (min ₹5,000)	10–15 days
ICICI Bank	Free	7–10 days
Axis Bank	0.50% of outstanding (max ₹10,000)	10–15 days
PNB	Free	7–10 days
Bank of Baroda	Free	7–10 days

Break-Even Analysis

If conversion fee is ₹10,000 and monthly savings is ₹1,000:

• Break-even: 10 months
• After 10 months: Pure savings
• Over 20 years: ₹2.3 lakh net savings (after fee)

Recommendation: Even with conversion fee, switching to RLLR makes sense if remaining tenure > 5 years.

Union Budget 2026: Impact on Home Loans and Real Estate

Positive Announcements:

1. Pradhan Mantri Awas Yojana (PMAY) - Urban

• Allocation: ₹18,625 crore (FY 2026-27)
• Previous Allocation: ₹7,500 crore (FY 2025-26)
• Increase: 148% jump (₹11,125 crore increase)
• Target: 1 crore additional urban houses

Beneficiaries

• Economically Weaker Section (EWS): Annual income < ₹3 lakh
• Low Income Group (LIG): Annual income ₹3-6 lakh
• Middle Income Group (MIG): Annual income ₹6-18 lakh

Subsidy: Interest subsidy up to ₹2.67 lakh on home loans Impact: More affordable housing supply, but demand-side incentives missing

2. PMAY-Urban 2.0

• Allocation: ₹3,000 crore (FY 2026-27)
• Previous Allocation: ₹300 crore (FY 2025-26)
• Increase: 900% jump (10x increase)
• Focus: Tier 2 and Tier 3 cities

Features

• Technology-driven implementation
• Faster approval processes
• Quality construction standards
• Sustainable housing solutions
• Timeline: 5-year mission mode (2026-2031)

3. PMAY-Gramin (Rural Housing)

• Allocation: ₹54,917 crore (FY 2026-27)
• Previous Allocation: ₹32,500 crore (FY 2025-26)
• Increase: 69% jump (₹22,417 crore increase)
• Target: 2 crore rural houses

Features

• Improved construction quality
• Toilet and water connection mandatory
• Solar panels encouraged
• Women ownership promoted

4. Ministry of Housing and Urban Affairs

• Total Budget: ₹86,000 crore (FY 2026-27)
• Previous Budget: ₹57,682 crore (FY 2025-26)
• Increase: ₹28,318 crore (49.5% jump)

Focus Areas

• Urban development
• Smart cities mission
• Metro rail projects
• Swachh Bharat Mission
• AMRUT (water supply and sewerage)

5. Infrastructure Development

• Tier 2/3 Cities Development: ₹5,000 crore over 5 years
• Industrial Corridors: Enhanced connectivity

Metro Projects

• Delhi-Meerut RRTS extension
• Mumbai Metro expansion
• Bengaluru Metro Phase 3
• Pune Metro completion

Impact: Indirect boost to real estate demand in these cities

6. REIT Promotion

• Asset Monetization: Public assets via REITs
• Tax Benefits: Continued tax pass-through status
• Investment Opportunities: Retail investors can participate
• Market Development: Organized real estate investment platform

What Budget 2026 DID NOT Announce (Major Disappointments)

1. No Increase in Section 24(b) Limit

• Current Limit: ₹2 lakh per year (unchanged since 2014)
• Industry Demand: Increase to ₹4-5 lakh

Reason for Demand:

• Property prices increased 80-100% since 2014
• Loan amounts increased proportionally
• Interest burden much higher now
• Inflation adjustment needed

Impact of No Change:

• Borrowers with ₹75 lakh+ loans pay ₹6-8 lakh annual interest
• Can claim only ₹2 lakh deduction
• Lose tax benefit on ₹4-6 lakh interest
• Additional tax burden: ₹1.2-1.8 lakh per year (30% bracket)

2. No Changes to Section 80EEA

• Current Benefit: Additional ₹1.5 lakh interest deduction for first-time buyers Eligibility Criteria (Unchanged):

• Stamp value ≤ ₹45 lakh (outdated in most cities)

• Carpet area ≤ 60 sqm (metro) or 90 sqm (non-metro)

• First-time homebuyer

• Loan from bank/HFC

Industry Demand:

• Increase stamp value limit to ₹75 lakh (realistic for metros)
• Increase carpet area to 75 sqm (metro) and 110 sqm (non-metro)
• Extend eligibility to second-time buyers upgrading

Current Reality:

• ₹45 lakh stamp value impossible in Mumbai, Delhi, Bengaluru
• Average property price in metros: ₹80 lakh - ₹1.5 crore
• Very few borrowers can avail this benefit

3. No Interest Subvention Schemes

• What Was Expected: Government subsidy on home loan interest
• Precedent: CLSS (Credit Linked Subsidy Scheme) under PMAY provided interest subsidy Industry Demand:
• 2-3% interest subvention for first-time buyers
• Applicable on loans up to ₹50 lakh
• For properties up to ₹75 lakh

Potential Impact if Announced:

• Effective rate: 6-7% instead of 9%
• EMI reduction: 20-25%
• Massive demand boost
• Affordable housing revival

4. No Stamp Duty Rationalization

Current Scenario:

• Stamp duty: 5-7% in most states
• Registration: 1-2%
• Total: 6-9% of property value
• On ₹1 crore property: ₹6-9 lakh upfront cost

Industry Demand:

• Central guidelines for uniform stamp duty (3-4%)
• Reduce registration charges to 0.5%
• Digital registration to reduce costs

Impact of No Change:

• High upfront cost burden continues
• Reduces affordability
• Black money in real estate persists

5. No GST Relief on Under-Construction Properties

• Current GST: 5% (with no input tax credit) or 12% (with ITC)
• Effective Rate: 5-8% on under-construction properties

Industry Demand:

• Reduce GST to 1-2%
• Or exempt affordable housing completely
• Rationalize GST structure

Impact:

• Buyers prefer ready-to-move (no GST)
• Under-construction sales declining
• Developers facing liquidity crunch

6. No Affordable Housing Definition Update

Current Definition (Outdated):

• Price cap: ₹45 lakh
• Carpet area: 60 sqm (metro), 90 sqm (non-metro)
• Set in 2017, not revised since

Industry Demand (CREDAI):

• Remove price cap completely
• Define based on carpet area only
• Or increase price cap to ₹75 lakh (metro), ₹50 lakh (non-metro)
• Adjust for inflation every 3 years

Current Reality:

• Affordable housing share dropped from 38% (2019) to 18% (2025)
• Developers shifting to mid-premium segment
• Affordable housing supply crisis

Impact of No Change:

• Affordable housing supply may fall below 10%
• First-time buyers priced out
• Rental demand increases
• Informal settlements grow

7. No Credit Guarantee Scheme for Homebuyers

Industry Demand (CREDAI):

• MSME-style credit guarantee for homebuyers
• Helps buyers lacking traditional income documents

Especially beneficial for:

• Self-employed professionals
• Informal sector workers
• Gig economy workers
• Small business owners

Potential Impact:

• 20-30% more buyers eligible for loans
• Demand boost in affordable segment
• Financial inclusion

Not Announced: Missed opportunity

8. No National Rental Housing Mission

Growing Rental Demand:

• 40% urban population lives in rented homes
• Rental market largely unorganized
• No tenant protection laws
• No incentives for rental housing development

Industry Demand:

• National Rental Housing Mission
• Tax benefits for rental housing developers
• Tenant protection framework
• Organized rental platforms

Not Announced: Rental housing remains neglected

Existing Tax Benefits (Unchanged in Budget 2026)

Under Old Tax Regime (Recommended for Homeowners):

1. Section 24(b) - Interest Deduction

• Self-Occupied Property: Up to ₹2 lakh per year
• Let-Out Property: No upper limit (entire interest deductible)
• Deemed Let-Out Property: No upper limit

Condition:

• Loan for purchase or construction
• Construction must complete within 5 years of loan sanction

Pre-Construction Interest:

• Interest paid during construction period
• Deductible in 5 equal installments post-completion
• Starts from year of completion
• Subject to overall ₹2 lakh limit for self-occupied

2. Section 80C - Principal Repayment

• Limit: Up to ₹1.5 lakh per year Includes:
• Principal repayment
• Stamp duty (one-time, in year of purchase)
• Registration charges (one-time)

Overall 80C Limit: ₹1.5 lakh (shared with PPF, ELSS, LIC, etc.) Lock-in: Cannot claim if property sold within 5 years

3. Section 80EEA - Additional Interest (First-Time Buyers)

• Limit: Up to ₹1.5 lakh per year (over and above Section 24(b))
• Total Interest Deduction Possible: ₹3.5 lakh (₹2 lakh + ₹1.5 lakh) Eligibility Criteria:
• First-time homebuyer (no other property owned by you or spouse)
• Stamp value ≤ ₹45 lakh
• Carpet area ≤ 60 sqm (metro) or 90 sqm (non-metro)
• Loan from bank or housing finance company
• Loan sanctioned between April 1, 2019 and March 31, 2022 (check for extensions)

Tax Saving: ₹45,000 per year (30% bracket) or ₹9 lakh over 20 years

4. Section 80EE - Legacy Additional Interest

• Limit: Up to ₹50,000 per year Eligibility:
• Loan amount ≤ ₹35 lakh
• Property value ≤ ₹50 lakh
• First-time homebuyer
• Loan sanctioned between April 1, 2016 and March 31, 2017 Note: Very few borrowers still eligible (old scheme)

5. Joint Ownership Tax Benefits

• Strategy: Buy property with spouse/parent as co-owner
• Benefit: Each co-owner can claim separate deductions

Conditions:

• Both must be co-owners in property documents
• Both must be co-borrowers in loan
• Deduction proportional to ownership share

6. Let-Out Property Strategy

• Scenario: You have two properties
• Strategy: Declare one as let-out (even if self-occupied or vacant)
• Benefit: No ₹2 lakh cap on interest deduction

Calculation:

• Rental Income (actual or deemed): ₹3 lakh
• Less: Municipal taxes paid: ₹20,000
• Net Annual Value: ₹2.80 lakh
• Less: Standard Deduction (30%): ₹84,000
• Less: Interest on loan: ₹6 lakh
• Income from House Property: -₹4.04 lakh (loss)
• Adjust loss against other income (salary, business)
• Tax Saving: ₹1.21 lakh (30% bracket)

Comparison:

• Self-Occupied: Deduct only ₹2 lakh interest, tax saving ₹60,000
• Let-Out: Deduct ₹6 lakh interest (net), tax saving ₹1.21 lakh
• Additional Benefit: ₹61,000 per year

Under New Tax Regime (Default from AY 2024-25):

Benefit	Old Tax Regime	New Tax Regime
Section 24(b) Interest	✅ Up to ₹2 lakh	❌ Not available
Section 80C Principal	✅ Up to ₹1.5 lakh	❌ Not available
Section 80EEA	✅ Up to ₹1.5 lakh	❌ Not available
Section 80EE	✅ Up to ₹50,000	❌ Not available
Total Max Deduction	₹5 lakh	₹0
Tax Saving (30% bracket)	₹1.5 lakh/year	₹0
Standard Deduction	₹50,000	₹75,000
Tax-Free Income	₹2.5 lakh	₹3 lakh (₹12 lakh with all deductions)

Industry Reaction to Budget 2026

CREDAI (Confederation of Real Estate Developers' Associations of India):

President Shekhar Patel's Statement:

Budget 2026 is a major disappointment for the real estate sector and homebuyers. While we appreciate the increased allocation to PMAY, the absence of demand-side incentives is glaring. The affordable housing definition is outdated, Section 24(b) limit hasn't been revised in 12 years despite 100% increase in property prices, and there's no relief on GST or stamp duty. We will continue to push for a new affordable housing definition without price caps, credit guarantee schemes for buyers, and interest subvention for first-time homebuyers.

Key Demands:

• Remove ₹45 lakh price cap for affordable housing
• Increase Section 24(b) limit to ₹4 lakh
• Introduce credit guarantee for homebuyers lacking documents
• Launch National Rental Housing Mission
• Reduce GST on under-construction properties to 1%
• Rationalize stamp duty across states (3-4%)

ANAROCK (Real Estate Consultancy):

Chairman Anuj Puri's Statement:

The Budget has missed a golden opportunity to revive housing demand. With repo rate hikes and MCLR increases making home loans expensive, the government should have provided tax relief to homebuyers. The absence of interest stimulants for buyers and developers will impact demand, especially in the affordable and mid-segment. We expect a 10-15% slowdown in housing demand in H1 FY27 if interest rates don't stabilize. The Budget has missed a golden opportunity to revive housing demand. With repo rate hikes and MCLR increases making home loans expensive, the government should have provided tax relief to homebuyers. The absence of interest stimulants for buyers and developers will impact demand, especially in the affordable and mid-segment. We expect a 10-15% slowdown in housing demand in H1 FY27 if interest rates don't stabilize.

Key Concerns:

• No demand-side incentives despite rising EMIs
• Affordable housing supply declining (38% in 2019 to 18% in 2025)
• Risk of inventory pile-up in some markets
• First-time buyers priced out
• Need for policy interventions beyond allocations

NAREDCO (National Real Estate Development Council):

Key Points:

• Appreciated PMAY allocation increase (positive)
• Disappointed with lack of tax benefits for buyers
• Demanded GST rationalization on under-construction properties
• Sought single-window clearance for faster approvals
• Requested infrastructure status for rental housing

Knight Frank India:

Chief Economist Samantak Das:

The Budget's focus on supply-side measures through PMAY is welcome, but demand-side challenges remain unaddressed. With home loan rates at 9-9.5%, affordability is a major concern. If the repo rate stabilizes at 7% by mid-2026, we may see recovery. Otherwise, expect inventory pile-ups, especially in peripheral locations of metros.

Predictions:

• Housing demand slowdown: 10-15% in H1 FY27
• Developers may offer EMI subsidies to sustain sales
• Price growth to moderate: 3-5% annually
• Affordable housing supply may fall below 10%
• Rental demand to increase

Stock Market Reaction:

Nifty Realty Index:

• Fell 1.7% on Budget day (February 1, 2026)
• Continued weakness in following week
• Major developers' stocks declined 2-4%

Individual Stocks (Budget Day Performance):

• DLF: -3.2%
• Godrej Properties: -2.8%
• Prestige Estates: -3.5%
• Oberoi Realty: -2.4%
• Brigade Enterprises: -3.1%
• Sobha Ltd: -4.2%

Investor Sentiment:

• Concerns about demand slowdown
• Higher interest rates impacting affordability
• No policy support from government
• Preference for defensive sectors

Homebuyer Sentiment:

Key Metrics:

• Home loan inquiries: Down 12% in metros (post-Budget)
• Property searches: Down 8% MoM (January 2026)
• Site visits: Down 10% in Mumbai, Delhi-NCR, Bengaluru
• Buyer sentiment index: 52 (neutral, down from 58 in December 2025)

Reasons for Caution:

• Rising EMIs due to MCLR hikes
• No new tax benefits announced
• Expectation of further rate hikes
• Festive season slowdown continuing
• Wait-and-watch approach

Regional Impact:

Mumbai:

• Average property price: ₹1.8 crore
• EMI increase: ₹3,000-₹5,000/month
• Demand impact: -15% expected
• Affordable housing (₹45 lakh cap) non-existent

Delhi-NCR:

Average property price: ₹1.2 crore EMI increase: ₹2,000-₹3,500/month Demand impact: -12% expected Peripheral locations most affected

Bengaluru:

• Average property price: ₹1.5 crore
• EMI increase: ₹2,500-₹4,000/month
• Demand impact: -10% expected
• IT sector layoffs adding to concerns

Pune:

• Average property price: ₹90 lakh
• EMI increase: ₹1,500-₹2,500/month
• Demand impact: -8% expected
• Relatively better positioned

Tier 2/3 Cities:

• Average property price: ₹40-60 lakh
• EMI increase: ₹800-₹1,500/month
• Demand impact: -5% expected
• PMAY-Urban 2.0 may provide support

Conclusion

The RBI's repo rate hike to 6.75% has triggered a domino effect, with banks increasing MCLR by 15-30 basis points, making home loans significantly more expensive for millions of borrowers. Combined with Budget 2026's disappointing lack of new tax benefits, homebuyers face a challenging environment with EMIs rising by ₹650-₹2,000 monthly.

However, strategic actions can mitigate this burden: switching to repo-linked loans saves 30-40 bps immediately, aggressive prepayments of 5-10% annually reduce interest substantially, and optimizing tax deductions under the old regime saves ₹60,000-₹1.5 lakh yearly. While experts predict 1-2 more rate hikes in 2026 before stabilization, proactive borrowers who negotiate spreads, maintain excellent credit scores, and review loans annually can save lakhs over their loan tenure despite the challenging rate environment.

Frequently Asked Questions (FAQs)

1. Why did banks increase MCLR after RBI repo rate hike?

Banks increased MCLR because the repo rate hike directly increases their cost of funds. When RBI raises the repo rate, banks borrow money from RBI at a higher cost. Additionally, to attract deposits, banks must offer higher FD rates, further increasing their marginal cost of funds. MCLR is calculated based on these costs, so when costs increase, MCLR increases proportionally (typically 60-120% of repo rate hike).

2. How much will my EMI increase due to the repo rate hike?

For a typical ₹50 lakh home loan with 20-year tenure, if your bank increased MCLR by 20 basis points (from 8.50% to 8.70%), your EMI will increase by approximately ₹600-₹800 per month. The exact increase depends on your outstanding principal, remaining tenure, and the extent of MCLR hike by your specific bank (15-30 bps). Use online EMI calculators with your loan details for precise calculation.

3. Should I switch from MCLR to repo-linked loan now?

Yes, switching to repo-linked loan (RLLR) is beneficial for most borrowers as of February 2026. RLLR rates are currently 30-40 basis points cheaper than MCLR rates (8.50%-9.25% vs 8.80%-9.60%). On a ₹50 lakh loan, this saves ₹1,000-₹2,000 per month or ₹2.4-4.8 lakh over 20 years. Most banks allow free conversion. However, RLLR is more volatile and will increase quickly if RBI hikes repo rate further.

4. Will RBI hike repo rate again in 2026?

Most experts predict 1-2 more small repo rate hikes (15-25 bps each) in 2026, likely in Q1-Q2 FY27 (April-September 2026), if inflation remains above 5.5%. However, if inflation moderates to below 5%, RBI may pause rate hikes from Q3 FY27 onwards. Rate cuts are possible in late 2026 or early 2027 if inflation falls below 4.5%. Monitor RBI's bi-monthly monetary policy announcements for updates.

5. What is the difference between repo rate and MCLR?

Repo Rate is the interest rate at which RBI lends to banks - it's set by RBI and is an external benchmark. MCLR is the minimum lending rate set by individual banks based on their internal cost of funds. Repo rate affects MCLR - when repo rate increases, banks' borrowing costs increase, leading to MCLR increase. Repo-linked loans (RLLR) are directly tied to repo rate, while MCLR-linked loans are tied to bank's internal benchmark.

6. Did Budget 2026 announce any new benefits for home loan borrowers?

No, Budget 2026 did not announce any new tax benefits for home loan borrowers. The existing benefits remain unchanged: Section 24(b) interest deduction up to ₹2 lakh, Section 80C principal deduction up to ₹1.5 lakh, and Section 80EEA additional ₹1.5 lakh for eligible first-time buyers. The industry was disappointed as they expected an increase in Section 24(b) limit to ₹4 lakh and other demand-side incentives.

7. Can I claim home loan tax benefits under the new tax regime?

No, home loan tax benefits (Section 24(b) interest deduction and Section 80C principal deduction) are NOT available under the new tax regime introduced from AY 2024-25. You must opt for the old tax regime to claim these deductions. For most homeowners, the old regime is more beneficial despite lower tax slabs in the new regime, as home loan deductions can save ₹60,000-₹1.5 lakh annually.

8. How can I reduce my home loan burden despite MCLR hikes?

Top 5 strategies: (1) Switch to repo-linked loan (save 30-40 bps immediately), (2) Make annual prepayments of 5-10% of principal (saves lakhs in interest), (3) Negotiate lower spread with your bank (reduce by 10-25 bps), (4) Increase EMI by 5-10% annually (close loan 5-7 years early), (5) Optimize tax deductions by choosing old regime and joint ownership (save ₹60,000-₹1.5 lakh/year).

9. What is the current repo rate and when will it change next?

The current repo rate is 6.75% (as of February 6, 2026), increased by 25 basis points from 6.50%. The next RBI Monetary Policy Committee (MPC) meeting is scheduled for April 1-3, 2026, where the repo rate decision will be announced. Based on inflation trends and economic conditions at that time, RBI may hike by another 15-25 bps, maintain status quo, or (less likely) cut rates.

10. How does joint ownership help in saving taxes on home loans?

Joint ownership allows each co-owner to claim separate tax deductions. If you and your spouse are co-owners (50:50) and co-borrowers of a ₹80 lakh loan with ₹7 lakh annual interest, instead of one person claiming only ₹2 lakh (losing ₹5 lakh), both can claim ₹2 lakh each = total ₹4 lakh deduction. This saves an additional ₹60,000/year (30% tax bracket) or ₹12 lakh over 20 years.

11. Is it better to prepay home loan or invest in mutual funds?

It depends on your risk appetite and expected returns. Prepayment gives guaranteed returns equal to your loan interest rate (9% currently) with zero risk. Mutual funds may give 10-15% returns but with market risk and no guarantee. Conservative approach: Prepay (guaranteed 9% return). Moderate approach: 50% prepayment + 50% equity MF. Aggressive approach: Invest in equity if confident of 12%+ returns. Also consider tax benefits - prepayment reduces interest deduction.

12. What is the best time to buy a house in 2026?

For end-users: Q2-Q3 FY27 (July-December 2026) during festive season when developers offer discounts and EMI subventions. Also consider end of FY27 (March 2027) when developers have year-end targets. For investors: Wait for rate cuts (likely Q4 FY27 or FY28) for better financing costs. Focus on RERA-approved ready-to-move properties to avoid GST. Tier 2 cities offer better appreciation potential than saturated metros.

13. How long does it take for MCLR changes to affect my EMI?

MCLR changes affect your EMI on your loan reset date, which is typically annual for most home loans. If your reset date is in June and the bank increases MCLR in February, your EMI will increase from June onwards, not immediately. However, for new loans, the new MCLR applies immediately. Check your loan agreement for your specific reset date. Repo-linked loans adjust faster (quarterly) compared to MCLR loans (annually).

14. Can I negotiate my home loan interest rate with the bank?

Yes, you can negotiate the spread component of your interest rate (Rate = MCLR + Spread). Spread typically ranges from 0.15% to 0.60% based on credit score, relationship, and loan amount. How to negotiate: (1) Maintain credit score 750+, (2) Show loyalty (salary account, other products), (3) Get competitor quotes, (4) Approach relationship manager, (5) Escalate if needed. Success rate: 60-70% for existing customers, potential savings: 10-25 bps.

15. What happens if I miss my home loan EMI payment?

Missing EMI has serious consequences: (1) Late payment charges: ₹500-₹1,000 per missed EMI, (2) Penal interest: 1-2% additional on outstanding, (3) Credit score drop: 50-100 points, affecting future loans, (4) Legal notice: After 3 missed EMIs, (5) Loan recall: Bank can demand full repayment, (6) Property auction: Bank can auction property to recover dues. If facing difficulty: Contact bank immediately, request restructuring, consider moratorium options, never ignore EMIs.