Home Loan Interest Rates Explained: Repo-Linked Rates, Spread and Resets

A fixed-rate home loan keeps the same interest rate for an agreed period, so the EMI does not move with the market. A floating-rate home loan has a rate that can change over the life of the loan, which is how most Indian home loans are structured. Some loans are hybrid: fixed for the first few years and floating after.

Your loan agreement and sanction letter say which kind you have. If you are unsure, that is the first question to put to your lender, because everything else in this guide applies only to floating-rate loans.

Under RBI's external benchmark rule, in force for all new floating-rate personal and retail loans (including home loans) since 1 October 2019, a lender must link the rate to an external benchmark rather than to its own internal cost measures. Most lenders use the RBI repo rate for home loans, though other external benchmarks are allowed.

Your rate is the benchmark plus a spread that the lender sets and writes into your loan agreement. If the benchmark is the repo rate and your spread is fixed in the agreement, then your rate moves up and down with the repo rate, point for point, once the lender passes the change on.

The spread has a credit-risk part, which can change only when your own credit assessment changes substantially, and other parts that, under the rule, can be revised only once in three years. A lender cannot lend below the benchmark rate for loans linked to it.

The benchmark rate in your loan must be reset at least once in every three months. How and when a lender passes a change on (for example, on a fixed reset date stated in your agreement) is a term of your loan, so look for the 'reset date' or 'reset frequency' in your sanction letter.

A change in the benchmark therefore reaches you with a delay of up to a reset period, not on the day RBI announces a decision. Lenders must also tell you about increases in your EMI or tenure that result, and send statements showing your principal and interest, EMI, the number of instalments left and your current annualised rate.

Take a ₹50,00,000 loan with 20 years to run at 8.50%, so the EMI is about ₹43,391. If the rate rises by 0.25% to 8.75% from the first EMI and the lender raises the EMI to keep the original end date, the EMI becomes about ₹44,186, about ₹794 a month more. If instead the lender keeps the EMI unchanged, the loan runs about 13 months longer and costs about ₹5.4 lakh more in total interest.

A 1% rise is a different scale: the EMI would become about ₹46,607, about ₹3,215 more a month, or the loan would run about 5 years and 9 months longer at the same EMI. These are illustrations for one loan, not forecasts; your own numbers depend on your balance, rate and remaining tenure. The Home Loan EMI Calculator on this site shows the same two outcomes for 0.25%, 0.5% and 1% for any loan you enter.

Under RBI's rules for EMI-based loans (circular of 18 August 2023), when an increase in the benchmark would raise your EMI or tenure, your lender must give you the choice of a higher EMI, a longer tenure at the same EMI, or a mix of both. You may also move to a fixed rate for the rest of the loan, where the lender offers it, and you may prepay part or all of the loan at any time.

Switching between floating and fixed can carry a fee. Any such charges must be disclosed in your sanction letter and when they are revised. Because pre-payment charges are barred on floating-rate loans to individuals (effective 1 January 2026), part-prepaying a floating-rate loan is often the most flexible response, but it uses cash you may need for other things, so weigh it against alternatives.

Which choice is best depends on your cash flow and plans. Raising the EMI keeps the loan on its original schedule. Keeping the EMI and extending the tenure feels painless today but costs more interest overall, as the example above shows.

Loans taken before the external-benchmark rule took effect may still be linked to a lender's internal measure such as MCLR or the old base rate. RBI's framework lets these borrowers move to an external benchmark: for borrowers who are permitted to prepay without charges, the switch can be made without charges or fees other than reasonable administrative and legal costs, and the rate offered should be the one charged on a comparable new loan. The switch is not treated as a foreclosure.

Whether to switch is a numbers question: compare the rate you pay today, the rate offered after the switch and any costs. Ask your lender in writing what the new rate, spread and reset date would be before you decide.

Ask: Which benchmark is my loan linked to? What is my spread, and can it change? On what date does my rate reset? What options will I get if my EMI or tenure would rise? What does it cost to switch to a fixed rate? The honest answers are in your sanction letter and key fact statement; if they are not, ask for them in writing.

These rules may change. RBI released draft revised interest-rate directions in August 2026; as reported, they keep the three-month reset limit, make the external benchmark optional for non-bank lenders and propose moving existing loans onto the new framework by April 2029. They are drafts, not final rules. Until RBI finalises anything, the rules described above are the ones in force. We update this guide when that changes.

Sources: RBI's circular on the external benchmark based lending rate (September 2019, effective 1 October 2019); RBI's circular and FAQs on reset of floating interest rates on EMI-based personal loans (18 August 2023); RBI's Pre-payment Charges on Loans Directions, 2025. This guide is general information, not financial advice.