Home loan interest rates: fixed vs floating, resets and fees

3.2.1 How do banks set home loan interest rates?

A bank sets a floating home loan rate as an external benchmark plus a spread. The Reserve Bank of India (RBI) applies this rule to new floating-rate retail loans, including housing loans. The current text is the RBI (Commercial Banks - Interest Rates on Advances) Directions, 2025, dated 28 November 2025. Paragraph 5(4) lists the allowed benchmarks. They are the RBI policy repo rate, the three-month and six-month Treasury Bill yields, and other rates that Financial Benchmarks India (FBIL) publishes. A bank must use one benchmark for each loan category. The spread is the bank’s margin over the benchmark. Paragraph 33 says the credit risk premium in the spread can change only when your credit assessment changes substantially, as agreed in the loan contract. The other parts of the spread can change once in three years. Paragraph 38 says the bank must reset the rate at least once in three months. On 7 October 2026, the RBI raised the repo rate by 25 basis points to 5.50 percent.

Part of the rate	What it is	Who sets it
External benchmark	RBI repo rate, a Treasury Bill yield or another FBIL rate	RBI or the market. The bank picks one per loan category.
Credit risk premium	Extra rate linked to your credit assessment	The bank. It can change only on a substantial change in your credit assessment.
Other spread parts	Operating cost and other margin	The bank. They can change once in three years.
Reset	When the new benchmark flows into your rate	At least once in three months (paragraph 38)

These directions cover commercial banks. Sachi did not check the rate rules for housing finance companies (HFCs) for this chapter. If your lender is an HFC, ask which benchmark it uses and how often it resets.

The State Bank of India website lists its external benchmark lending rate (EBLR) as 7.90 percent plus CRP plus BSP. The page defines EBLR as the external benchmark rate plus a credit risk premium (CRP). It does not expand BSP. This rate is effective from 15 December 2025. The page was last updated on 12 December 2025, so it was published before the October 2026 repo rise. Check the lender’s own rate page on the day you apply.

3.2.2 What is the difference between fixed and floating home loan rates?

A floating rate moves with the benchmark at each reset, so your EMI or tenure can change during the loan. Under paragraph 5(5), a fixed-rate loan has one rate for the full tenor. Paragraph 6(3) of the RBI Interest Rates on Advances Directions, 2025 lets a bank offer all loans at fixed or floating rates. Under paragraph 45, the benchmark and reset rules do not apply to fixed-rate loans with a tenor above three years. Some loans are hybrid, with a fixed rate for some years and then a floating rate. The same paragraph says the floating part of a hybrid loan follows the floating-rate rules. Paragraphs 352 and 353 of the RBI Responsible Business Conduct Directions, 2025 ban pre-payment charges on floating-rate loans to individuals for non-business purposes. That covers old and new loans. For a fixed-rate loan, any charge follows the lender’s approved policy. The lender must disclose that charge in the sanction letter, the loan agreement and the Key Facts Statement (KFS).

Feature	Fixed rate	Floating rate
Rate during the loan	One rate for the full tenor (a hybrid loan fixes only part)	Changes with the benchmark at each reset
Reset rule	Benchmark rules do not apply if the tenor is above three years	Reset at least once in three months
EMI risk	You do not gain if the benchmark falls	EMI or tenure rises if the benchmark rises
Pre-payment charges	As per the lender’s policy, disclosed in the KFS	None for individuals, non-business purpose
Hybrid loan	Fixed part as per the contract	The floating part follows floating-rate rules

3.2.3 What happens to my EMI when the repo rate changes?

When the repo rate changes, a repo-linked floating rate changes at the next reset, and the lender then changes your EMI or your tenure. Paragraph 38 of the RBI Interest Rates on Advances Directions, 2025 sets the reset at least once in three months. The RBI raised the repo rate by 25 basis points to 5.50 percent on 7 October 2026. If a bank passes the full rise to your rate, the example below shows what changes. It uses a new loan of ₹50 lakh for 20 years at an example rate of 7.90 percent. This rate is an example for the calculation, not a quote from a lender. The EMI rises by about ₹779 a month. If the lender keeps the EMI the same and makes the tenure longer instead, the loan runs about 12 months more. Total interest then rises by about ₹4.9 lakh, compared with about ₹1.9 lakh when the EMI rises. Sachi calculated these figures with the standard EMI formula.

Case (₹50 lakh, 20 years)	Rate	EMI	Tenure	Total interest
Before the rise	7.90 percent	₹41,511	240 months	about ₹49.6 lakh
Rise taken as a higher EMI	8.15 percent	₹42,290	240 months	about ₹51.5 lakh
Rise taken as a longer tenure	8.15 percent	₹41,511	about 252 months	about ₹54.5 lakh

3.2.4 What must the lender do when a floating rate resets?

The lender must tell you how a rate change affects your loan, and it must give you choices when the rate rises. For commercial banks, paragraph 349 of the RBI (Commercial Banks - Responsible Business Conduct) Directions, 2025, dated 28 November 2025, sets these duties. Housing finance companies apply the matching NBFC Directions. At sanction, the lender must explain the possible impact of a benchmark change on your EMI and tenure. At a reset, you “shall also be given the choice” of a higher EMI, a longer tenure or both. You can also prepay in part or in full at any point. A switch to a fixed rate is optional for the lender. It “may, at its option” offer one under its Board-approved policy. A longer tenure must not cause negative amortisation, which means the unpaid loan amount grows. Sachi read the text of 28 November 2025. The version updated on 1 October 2026 is a PDF that Sachi could not open.

Check that your lender does these things:

1. Explains, in the sanction letter, how a benchmark change can change the EMI and tenure.
2. Tells you at once if your EMI or tenure goes up.
3. Discloses all charges for a switch between floating and fixed rates in the sanction letter.
4. Sends a statement each quarter with the principal and interest paid, the EMI, the EMIs left and the annual percentage rate (APR).

3.2.5 Can I prepay or switch my home loan without charges?

Yes, for a floating-rate home loan to an individual for a non-business purpose. For commercial banks, paragraphs 352 and 353 of the RBI Responsible Business Conduct Directions, 2025 set the rules. For such a loan sanctioned or renewed on or after 1 January 2026, the bank “shall not levy pre-payment charges”. The source of the money does not matter, and there is no lock-in period. Older loans are also covered. For such floating-rate term loans sanctioned before 31 December 2025, a bank “shall not charge pre-payment charges”. For a hybrid loan, the rule depends on the rate type when you prepay. For a fixed-rate loan, charges follow the lender’s approved policy. The lender must disclose them in the sanction letter, the loan agreement and the KFS. Housing finance companies follow paragraph 163 of the RBI (Housing Finance Companies) Directions, 2025. An HFC cannot charge a pre-closure penalty on a floating-rate housing loan, whatever the source of the money.

Your situation	What the RBI rule says
Floating rate, individual, non-business, any sanction date	No pre-payment charges, no lock-in (Responsible Business Conduct Directions, paragraphs 352 and 353)
Fixed-rate HFC loan, prepaid from your own funds	No pre-closure charge (HFC Directions, paragraph 163)
Fixed rate	Charges as per the lender’s policy, based on the amount prepaid, disclosed in the KFS (paragraphs 352 and 353)
Older bank loan on MCLR (marginal cost of funds based lending rate) or Base Rate, both internal benchmarks	It continues until repayment or renewal. If you can already prepay without charges, a switch to an external benchmark is free. Only reasonable administrative or legal costs apply (Interest Rates on Advances Directions, paragraph 41).

3.2.6 What should I check in the Key Facts Statement?

The Key Facts Statement (KFS) is the standard summary of the loan that the lender must give you before you sign. RBI requires it for all new retail term loans sanctioned on or after 1 October 2024. For banks, paragraph 348 of the 2025 Responsible Business Conduct Directions now holds this rule. For a loan of seven days or more, the KFS stays valid for at least three working days. The KFS must include a computation sheet of the annual percentage rate (APR). The APR includes all the charges that the lender levies, so it shows the full yearly cost better than the interest rate alone. The lender cannot charge you a fee that the KFS does not list, unless you give explicit consent. So compare the APR across lenders, and ask for each KFS in writing.

Compare these lines in each KFS:

1. The benchmark, the spread and the starting interest rate.
2. The reset frequency and how the lender applies a rate change.
3. The processing fee and every other charge.
4. The APR and the repayment schedule.
5. The pre-payment charges, if any.

3.2.7 What does a bank’s approval of a project tell me?

A bank’s approval of a project means that this bank checked the project for its own lending. It does not certify the title, the approvals or the delivery date for you. The RBI directions and circulars that Sachi checked for this chapter do not define project approval by a lender. They also do not make it a legal check on behalf of the buyer. So treat it as one lender’s internal decision on a date that you may not know. It also does not decide your own loan. The lender checks your income and credit separately, and your terms come in your sanction letter and KFS. Ask the lender which phase or tower the approval covers, and whether it has conditions. For a new flat in Bangalore, check the project’s registration on the K-RERA portal yourself. Have a lawyer read the title and the agreement for sale. Then compare the payment schedule in the agreement with the lender’s disbursement process.