The short answer
A floating rate moves with a benchmark; a fixed rate does not, for the period the lender fixes it. Since 1 October 2019, the Reserve Bank has required banks to link all new floating-rate retail loans, including home loans, to an external benchmark: the RBI policy repo rate, a Treasury bill yield, or another benchmark published by Financial Benchmarks India. Most banks chose the repo rate, so these loans are often called repo-linked or EBLR (external benchmark lending rate) loans. The rate must be reset at least once every three months.
Floating-rate loans to individuals carry no prepayment or foreclosure charge. For loans sanctioned or renewed from 1 January 2026, the Reserve Bank's Pre-payment Charges on Loans Directions, 2025 make this explicit for any floating-rate loan to an individual for a non-business purpose. Fixed-rate loans can carry a charge, which must be disclosed upfront.
Since the RBI's August 2023 framework on resets of floating-rate EMI loans, your lender must tell you at sanction how a rate change could affect your EMI or tenure, and at a reset must offer you choices: a higher EMI, a longer tenure, a combination, a switch to a fixed rate, or prepayment. Many borrowers on older MCLR or base-rate loans pay more than new borrowers for no good reason and can switch.
How a floating rate is built
An EBLR loan rate is the benchmark plus a spread. The benchmark is public; the spread is the lender's margin and covers its costs and your credit risk. Under the 2019 rules, the credit-risk premium in the spread can change only when your credit assessment changes substantially, as agreed in the loan contract, and other parts of the spread can be changed only once in three years.
So when the Reserve Bank changes the repo rate, a repo-linked loan follows at its next reset date. The lender's spread stays put. That is why new and old EBLR borrowers at the same bank can pay different rates: their spreads were set at different times, based on different credit scores and different market conditions.
Housing finance companies are not covered by the bank EBLR mandate. Their floating rates are usually linked to their own prime lending rate, which they set, so changes may not track the repo rate one-for-one or at the same time. Read the loan agreement to see which benchmark your loan uses and how often it resets.
Legacy loans: MCLR and base rate
Before October 2019, bank home loans were linked to the bank's own internal benchmark: the base rate before April 2016 and the marginal cost of funds based lending rate (MCLR) after that. MCLR moves with the bank's cost of funds and resets on dates fixed in the contract, often once a year. It tends to move more slowly than the repo rate, in both directions.
These loans still exist. If you are on an MCLR or base-rate loan, compare your current rate with what your bank charges new EBLR borrowers with a similar credit score. Banks are required to allow existing borrowers to switch to the external benchmark, usually for a fee and on mutually agreed terms. If the gap is large, switching within the same bank, or a balance transfer to another lender, can save a lot.
What happens to your EMI when the rate changes
When a floating rate rises, the lender either raises your EMI or extends the number of EMIs; when it falls, the reverse. Many lenders' default is to keep the EMI and change the tenure. The August 2023 RBI framework requires the lender to inform you of any change in EMI or tenure, and to give you the choice described below.
Worked example (illustrative; assume 8.5 per cent): you have ₹50 lakh outstanding with 18 years (216 months) left, paying an EMI of about ₹45,273. The rate rises by 0.25 percentage point to 8.75 per cent. To keep the tenure, the EMI rises to about ₹46,045, an increase of about ₹772 a month. To keep the EMI, the tenure lengthens to about 225 months, roughly nine more EMIs at the end.
If the rate instead falls to 8.25 per cent and you keep paying ₹45,273, the loan ends in about 208 months, eight months early. A quarter-point move looks small; over a full rate cycle of several moves, the difference in total interest is large. Our home loan EMI, tenure and prepayment guide has more on how tenure drives total interest.
One limit applies to tenure extensions: under the 2023 framework, the lender must not extend the tenure so far that the EMI no longer covers the interest (negative amortisation), and the extended tenure must stay within your age limit for the loan.
Your options at a reset: the 2023 RBI framework
The Reserve Bank's circular of 18 August 2023 on Reset of Floating Interest Rate on EMI-based Personal Loans applies to banks, NBFCs and housing finance companies for equated-instalment loans to individuals, including home loans. It requires the lender to do the following.
At sanction: explain clearly how a change in the benchmark could change your EMI or tenure, and disclose the charges for switching between floating and fixed.
At a reset: give you the option to switch to a fixed rate, as per the lender's board-approved policy; to choose a higher EMI, a longer tenure or a combination; and to prepay in part or in full at any time. The lender must communicate any change in EMI or tenure through appropriate channels.
Ongoing: send a quarterly statement showing the principal and interest recovered so far, the EMI, the number of EMIs left, and the annualised interest rate. All applicable charges for switching must be disclosed in the sanction letter and on the lender's website.
The Reserve Bank published FAQs on this circular in January 2025. If your lender increases your tenure or EMI without informing you, raise a written complaint with the lender and, if it is not resolved, with the RBI Integrated Ombudsman at cms.rbi.org.in.
Fixed and hybrid rates
A truly fixed rate stays the same for the whole tenure, but these are rare for long home loans in India. More common are hybrid or 'fixed for an initial period' loans: the rate is fixed for, say, the first two to five years and then becomes floating. Many 'fixed' products also allow the lender to reset the rate at intervals stated in the agreement, so read the reset clause before believing the word 'fixed'.
Fixed rates are usually priced higher than floating rates at the time you borrow, because the lender takes on the risk of rates rising. You pay for certainty. That can suit a borrower whose budget has no room for a higher EMI, but it costs money if rates fall.
Fixed-rate loans can carry a prepayment or foreclosure charge. Under the Reserve Bank's 2025 prepayment directions, any such charge must be disclosed in the sanction letter and Key Facts Statement, and no charge can be levied that was not disclosed. A dual or special-rate loan that is on a floating rate at the time you prepay is treated as floating for the purpose of the no-charge rule.
Prepayment and foreclosure
Banks have been barred from charging foreclosure or prepayment penalties on floating-rate home loans to individuals since 2012, and the rule was extended to all floating-rate term loans to individuals in 2014; housing finance companies followed similar National Housing Bank instructions. The Reserve Bank's Pre-payment Charges on Loans Directions, 2025, issued on 2 July 2025, consolidate and extend these rules for loans sanctioned or renewed on or after 1 January 2026.
Under those directions, no regulated lender may charge a prepayment fee on a floating-rate loan to an individual for any purpose other than business, whether you prepay in part or in full, whatever the source of the money, and with no minimum lock-in. Our EMI and prepayment guide explains when prepaying pays off, and the prepayment calculator shows the saving.
Choosing: a short decision guide
Floating suits most borrowers on a long home loan: it usually starts cheaper, falls when rates fall, and can be prepaid without charge. Plan your budget so that you could absorb a rise of one or two percentage points in the EMI, or a longer tenure, without strain.
A fixed or hybrid rate can suit a borrower with no room in the budget for a rise, especially early in the loan when the outstanding balance is highest. Check how long the fixed period is, what happens after it, and whether there is a prepayment charge.
If you already have a loan: find your benchmark (EBLR, MCLR, base rate, or the lender's prime rate), your current rate and your spread. Compare with what your lender and others offer new borrowers with your score. If the gap is meaningful, ask your lender to reprice, and if not, consider a balance transfer (see our balance transfer guide).
Finding out what your loan is linked to
Your sanction letter and loan agreement name the benchmark (for example 'RBI repo rate' or 'MCLR, one-year'), the spread and the reset dates. The quarterly statement required under the 2023 framework shows the current annualised rate, the EMI and the number of EMIs left. If you cannot find these, ask the lender in writing for a statement of your benchmark, spread and next reset date.
Compare the spread, not just today's rate. Two loans at the same rate today on different benchmarks will diverge as soon as the benchmarks move differently. Two EBLR loans at different spreads will stay apart for as long as the spreads stay where they are.
Keep a simple record of each reset: the date, the new rate, and whether the EMI or the tenure changed. Over a few years it shows whether your lender is passing rate changes through as your contract says, and it gives you the facts if you need to complain.
Common mistakes
Never checking the rate after the loan starts. Many borrowers on old MCLR or base-rate loans pay more than new borrowers at the same bank.
Assuming 'fixed' means fixed for 20 years. Read the reset clause.
Letting the lender extend the tenure at every rate rise without noticing. Each extension adds years of interest; ask for a higher EMI instead if you can afford it.
Ignoring the quarterly statement. It shows your current rate, EMI and remaining EMIs.
Paying a switching fee without checking that the saving over the remaining tenure exceeds it.
Expecting a housing finance company's floating rate to move exactly with the repo rate. Check its benchmark.
Common questions
What is EBLR in a home loan?
External benchmark lending rate: a floating rate set as an external benchmark, most often the RBI repo rate, plus the lender's spread. Banks have had to link new floating-rate retail loans to an external benchmark since 1 October 2019.
How often does a repo-linked home loan rate change?
At least once every three months under RBI rules. The new rate applies from the reset date set in your loan agreement.
Is it better to take a fixed or floating home loan?
Floating usually starts cheaper, falls when rates fall, and has no prepayment charge for individuals. Fixed gives certainty at a higher starting rate and may carry a prepayment charge. Choose based on how much EMI risk your budget can absorb.
Can I switch from floating to fixed in the middle of a home loan?
Yes. Under RBI's August 2023 framework, lenders must offer the option to switch to a fixed rate at a reset, as per their board-approved policy, with the switching charges disclosed.
Can my bank increase my home loan tenure without telling me?
No. Under the 2023 framework, the lender must inform you of changes to the EMI or tenure and offer you options, and must not extend the tenure so far that the EMI no longer covers the interest.
Is there a prepayment penalty on a floating-rate home loan?
No, for individual borrowers. RBI's 2025 prepayment directions bar any prepayment charge on floating-rate loans to individuals for non-business purposes, for loans sanctioned or renewed from 1 January 2026, and earlier rules already barred them on floating-rate home loans.
Should I move from MCLR to repo-linked?
Compare your current MCLR rate with the EBLR rate your bank offers new borrowers with your profile. If the gap, over your remaining tenure, saves more than the switching fee, it is usually worth it.
Sources
- Reserve Bank of India, circular of 4 September 2019, External Benchmark Based Lending — mandatory for new floating-rate retail loans from 1 October 2019; reset at least once in three months; spread changes (rbi.org.in); now in the consolidated Master Directions of 28 November 2025; checked 2 October 2026
- Reserve Bank of India, circular of 18 August 2023, Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans, and RBI FAQs of January 2025 (rbi.org.in); checked 2 October 2026
- Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025, issued 2 July 2025, effective for loans sanctioned or renewed on or after 1 January 2026 (rbi.org.in); checked 2 October 2026
- Reserve Bank of India circulars of June 2012 and May 2014 on removal of foreclosure charges and prepayment penalties on floating-rate loans to individuals; checked 2 October 2026
- EMI and tenure figures computed with the standard reducing-balance formula at assumed rates; not quotes
Last checked 2026-10-02.