Two loans of ₹60 lakh, from two lenders, can carry different rates even though both call themselves “floating” and both claim to follow RBI’s repo rate. The difference is not marketing. It is a benchmark, a spread on top of it, and a set of rules about how often each can change – and the rules are not the same for a bank and a housing finance company.
This guide works through where a home-loan rate actually comes from: the repo rate and the committee that sets it, the external benchmark banks must use, the older MCLR and base-rate systems still running on some loans, and how a housing finance company is different. Then it covers what happens to your EMI when the repo rate moves, what a lender can and cannot charge you to switch benchmarks or lenders, and what a balance transfer actually costs and saves, worked through on a real loan.
The repo rate and the benchmark
The repo rate is what the Reserve Bank of India charges banks to borrow from it overnight. It is set by RBI’s Monetary Policy Committee (MPC), a panel chaired by the Governor that meets several times a year. At its 62nd meeting, held 3–5 Aug 2026, the MPC voted unanimously to hold the rate at 5.25%, where it has stood since December 2025; its next meeting is due 5–7 Oct 2026, roughly the usual two-month gap.
The repo rate matters to your loan because RBI requires it to. Every floating-rate retail loan from a bank – housing, auto or anything else – has to be priced against an external benchmark, and for almost every home loan that benchmark is the repo rate itself (the alternative, a Treasury-bill yield published by FBIL, is rarely used for housing). RBI’s Directions put the rule plainly: “All floating rate personal or retail loans (housing, auto, etc.)… shall be benchmarked to an External Benchmark Rate” (paragraph 25). Your rate is this benchmark plus a spread the bank adds, and the benchmark has to move on a fixed schedule: “The interest rate under external benchmark shall be reset at least once in three months” (paragraph 38).
A bank cannot mix benchmarks within one loan category either – it has to pick one external benchmark for its home loans and use it for every borrower in that category (paragraph 27). What can differ, borrower to borrower, is the spread on top of it: a later section below covers that.
MCLR and the older base rate
Not every home loan sits on the external benchmark. Three older systems still govern loans taken out before the current rule applied, and each stays legally in force for as long as those loans run.
- The Benchmark Prime Lending Rate (BPLR), an internal rate each bank set for itself, priced loans sanctioned up to 30 Jun 2010.
- The Base Rate, also internal, took over for loans sanctioned or renewed between 1 Jul 2010 and 31 Mar 2016.
- The Marginal Cost of Funds based Lending Rate (MCLR), again set by the bank itself from its own cost of funds, has applied since 1 Apr 2016 – and still does, for any loan not on the external benchmark.
A bank reviews its MCLR every month and publishes it for several tenors, and the tenor that applies to your loan resets on a date fixed in your contract – tied either to when the loan first disbursed or to the bank’s MCLR review date – at intervals of up to a year (paragraphs 34–37). SBI still quotes a full MCLR card: its three-year MCLR is 8.80%, effective 15 Aug 2026. That figure does more than price old loans – Karnataka RERA Rule 16 sets a promoter’s interest for delayed possession at SBI’s highest published MCLR plus 2%, which our guide to builder delay works through.
If your loan is still on MCLR or the Base Rate, it stays there until you repay it, renew it, or ask to move (paragraphs 39–40); nobody moves it without your request. What moving it – to the external benchmark, or to a cheaper lender altogether – actually costs is covered later in this guide.
Housing finance companies
Housing finance companies (HFCs) – LIC Housing Finance, Bajaj Housing Finance and others regulated as non-banking finance companies rather than banks – are not covered by the external-benchmark rule at all. That rule, in RBI’s Interest Rates on Advances Directions, binds “Commercial Banks” specifically; the parallel Housing Finance Companies Directions never mention an external benchmark for a housing loan. Instead, an HFC prices its loans off its own reference rate, set under a board-approved policy that takes in “cost of funds, margin and risk premium” (paragraph 14(14)).
In practice this shows up as a published reference rate that looks nothing like the rate you actually pay. LIC Housing Finance calls its own rate the LIC Housing Prime Lending Rate (LHPLR): 16.90% for housing loans, effective 28 Apr 2025. Almost nobody borrows at 16.90% – the lender discounts that headline rate by a large, borrower-specific margin to arrive at what you actually sign for, which is why LIC Housing Finance’s published home-loan rates run from 7.15% to 10.15%. The reference rate itself moves rarely; what changes your rate day to day is the discount, and that is exactly the kind of thing your sanction letter should spell out.
Do not set an HFC’s reference rate against a bank’s EBLR – they are not the same kind of number. A bank’s rate is the repo rate plus a small spread you can check against RBI’s own figure. An HFC’s reference rate is set internally and discounted by an amount the HFC alone decides, so the only number worth comparing across lenders is the final rate in your sanction letter, or better, the annual percentage rate on the Key Facts Statement.
Ask an HFC directly how often it reviews its reference rate and how it applies your discount, because none of that is standardised the way a bank’s external-benchmark reset is.
Why the spread differs
The benchmark is the same for every borrower at a bank – the repo rate is 5.25% whoever you are. What differs is the spread the bank adds on top, and RBI lets a bank set that spread however its own board-approved policy decides (paragraph 28), inside two limits worth knowing.
First, once your loan is running, the part of your spread that reflects your own credit risk can rise only if your “credit assessment undergoes a substantial change”, as your loan contract defines it – not because the bank simply wants more. Second, every other part of the spread, such as the bank’s own margin, can change at most once every three years, though a bank may cut it sooner, for any borrower, to keep their business (paragraph 33).
Credit score is the biggest single reason two borrowers pay different spreads at the same bank. Axis Bank’s published card, for instance, prices a home loan at repo plus 2.75% to repo plus 3.60% for a CIBIL score of 751 or above – an effective 8.00% to 8.85% – against repo plus 2.95% to repo plus 3.85% for a lower score or no credit history at all. Our affordability guide shows the same pattern on a housing finance company’s full published grid, and what it is worth in interest over the life of a loan.
Loan size, tenor, and whether you take a top-up or add a co-borrower can move the spread too, but a lender rarely publishes the weight of each. The only reliable way to compare two offers is the annual percentage rate on each one’s Key Facts Statement, which folds the spread, the benchmark and every fee into one number.
| Benchmark | Who sets it | Resets | Example |
|---|---|---|---|
| External benchmark (EBLR) | RBI’s repo rate, plus the bank’s spread | At least every 3 months | Repo 5.25%; Axis Bank’s best score: repo + 2.75% |
| MCLR | The bank’s own cost of funds, reviewed monthly | At the loan’s own reset date, at most yearly | SBI’s 3-year MCLR: 8.80%, from 15 Aug 2026 |
| An HFC’s reference rate | The HFC’s own board-approved policy | Set out in the loan agreement | LIC Housing Finance’s housing PLR: 16.90%, from 28 Apr 2025 |
EBLR and MCLR bind commercial banks. A housing finance company sets its own reference rate under a board-approved policy instead, as the section above explains.
When the repo rate moves
Say you took a ₹60 lakh loan over 20 years on the external benchmark, priced at repo plus a 2-percentage-point spread – 7.25% at today’s repo rate, close to what SBI advertises as its lowest published rate. The EMI on that loan is ₹47,423.
Now the MPC cuts the repo rate by a quarter-point, to 5.00%. Your spread does not move – nothing about your credit risk has changed – so your rate becomes 7.00% at your next reset date, at most three months away. If your bank passes the cut through as a lower EMI, it falls to ₹46,518: about ₹905 less a month. If it keeps your EMI where it was instead, the loan simply ends around ten months sooner.
Which of those you get, and what else RBI lets you choose at a reset, is covered in full in our guide to prepaying a home loan.
Fixed, floating and hybrid loans
RBI’s Directions recognise three kinds of rate. A floating-rate loan is one whose rate “does not remain fixed during the tenor of the loan”; a fixed-rate loan is one where it is “fixed for the entire tenor” (paragraph 5). A hybrid loan is partly one and partly the other – usually fixed for an introductory period, then floating for the rest.
A genuinely fixed home loan, for the whole tenor, is rare and expensive, because a fixed-rate loan of more than three years is exempt from the benchmark rules altogether (paragraph 45(4)(v)) – the bank is pricing in years of rate uncertainty on its own book, not passing through RBI’s benchmark. Axis Bank, for one, publishes a fixed home-loan rate of 14.00%, against 8.00% to 8.85% on its floating loans at today’s repo rate. What lenders more often sell as “fixed” is the hybrid version: HDFC’s TruFixed loan, for instance, holds the rate for the first two or three years, then converts automatically to its ordinary floating rate. On a hybrid loan, the floating portion follows the same benchmark, spread and reset rules as any other floating loan once it takes over.
A shorter fixed-rate loan, under three years, is not exempt: RBI requires its rate to be no lower than the benchmark for a similar tenor at the time (paragraph 6(6)), so it cannot simply undercut the market.
A cheaper rate, no new loan
If your loan is still on MCLR, the Base Rate or BPLR, you have a standing right to move it to the external benchmark, and RBI is specific about what that can cost. You can also, on any loan, simply ask your own lender for a smaller spread.
Switching from MCLR to EBLR
If you are the kind of borrower who could already prepay your loan without a charge – which, on a floating-rate loan to an individual, is almost everyone – your bank has to let you switch to the external benchmark “without any charges / fees, except reasonable administrative / legal costs” (paragraph 41). The rate you land on has to match what the bank would charge a new borrower taking the same kind of loan, for the same amount and tenor, that day. If you do not fall into that group, the bank can still offer to move you, but only on terms you both agree to. Either way, RBI treats the switch as distinct from a foreclosure of your existing loan, so the usual closure paperwork does not apply.
Asking for a lower spread
You do not have to change benchmark to get a cheaper rate. As the spread section above sets out, a bank can cut the non-credit-risk part of your spread earlier than its usual three-year cycle, for customer retention, at its own discretion. There is no RBI-mandated fee cap for this, so any administrative charge is between you and your lender – ask what it is in writing before you agree, and weigh it against what a full balance transfer would cost instead.
Balance transfer: what it costs
Moving the loan itself, principal and all, to a new lender is a balance transfer. It is a fresh loan that repays the old one, so it comes with a fresh set of charges, on top of whatever rate the new lender quotes you.
In Karnataka the largest of these is usually the new mortgage. The new lender registers its own mortgage by deposit of title deeds (MODT) over your property, and that carries stamp duty of 0.5% of the loan amount, with no upper limit – a rate the Karnataka Stamp (Amendment) Act, 2023 raised from a lower, capped rate, in force from 3 Feb 2024. On top of that sits whatever processing fee and legal or valuation charges the new lender levies for a fresh loan; most price these as a small percentage of the loan, though at least one lender, Bank of Baroda, publishes a flat fee for a straight takeover instead of its usual percentage.
Here is what that adds up to on a real loan.
₹60 lakh is outstanding on a loan with 15 years left, at 9.00%. A new lender offers 8.25% on a balance transfer. The old EMI is ₹60,856; the new one is ₹58,208 – ₹2,648 less a month. Left to run, the old loan costs ₹49.54 lakh more in interest; the new one costs ₹44.78 lakh: a gross saving of ₹4.77 lakh over the 15 years.
Moving costs an estimated ₹75,000: ₹30,000 in MODT stamp duty, plus a processing fee and legal charges we have put at ₹30,000 and ₹15,000 – illustrative figures, since these vary by lender. Against a monthly saving of ₹2,648, that ₹75,000 is recovered by the 29th month, about two years and five months in. Every month after that is a real saving: ₹4.02 lakh of it, net of the cost of moving, by the time the loan would otherwise have ended.
₹4.77 lakh saved by moving lenders
Cumulative saving on the balance-transfer example above: ₹60 lakh outstanding, 15 years left, moved from 9.00% to 8.25%. Hover or tab to a bar for the exact figure.
Show as a table
| Milestone | Months | Saved so far |
|---|---|---|
| Year 1 | 12 | ₹31,771 |
| Year 2 | 24 | ₹63,542 |
| Year 3 | 36 | ₹95,313 |
| Year 5 | 60 | ₹1.59 lakh |
| Year 10 | 120 | ₹3.18 lakh |
| Year 15 | 180 | ₹4.77 lakh |
The arithmetic only works in your favour if you keep the loan running past the break-even month. Move again soon after, or clear the loan early with a large prepayment, and you may not recover the full cost of moving.
A transfer needs your current lender’s cooperation too. Once you or the new lender ask for the account to move, the current lender has 21 days to give its consent or raise an objection (paragraph 344). Once the new loan has closed the old one, the original lender owes you your property documents back; our guide to prepaying a home loan sets out that closing timeline in full, and it applies here too.
The worked example above moves ₹60 lakh at 8.25% instead of 9.00%, saving ₹2,648 a month. Against the ₹75,000 it costs to move – MODT, a processing fee and legal charges – you are ahead from the 29th month, and every rupee after that is a real saving. But it is a fresh loan: a fresh valuation, fresh paperwork, and the new lender’s own conditions.
RBI lets a bank cut the non-credit-risk part of your spread early, for customer retention, without waiting the usual three years. Ask in writing, and quote a rival’s rate. There is usually a smaller administrative fee, no fresh MODT, and none of the 21-day consent process a transfer needs. It will not always work, but it costs nothing to ask first.
Before you switch or transfer
- Read your sanction letter to see whether your loan is on EBLR, MCLR or an older base rate, and what your spread is.
- Ask your own lender for a lower spread first, in writing, quoting a rival’s rate.
- Compare the annual percentage rate, not the headline rate, before you move.
- Work out your own break-even: the MODT, processing fee and legal cost against the EMI you would save each month.
- Ask for RBI’s free switchover from MCLR to an external benchmark if you qualify; it should cost only administrative and legal charges.
- Check the reset date and frequency in the loan contract before you sign, not after a rate has moved.
- If you do transfer, confirm the old lender’s consent lands within 21 days, and collect your documents once the old loan is closed.
Sources, checked 10 Sep 2026. Repo rate: Monetary Policy Committee resolution of 5 August 2026 (RBI). External benchmark, spread, MCLR, Base Rate, BPLR, fixed and hybrid loans, and switchover: RBI (Commercial Banks – Interest Rates on Advances) Directions, 2025, paragraphs 5, 6(6), 10, 15, 25–28, 33, 34–41 and 45(4)(v) (RBI). Balance-transfer consent within 21 days: RBI (Commercial Banks – Responsible Business Conduct) Directions, 2025, paragraph 344 (RBI). Housing finance companies’ own reference rate: RBI (Housing Finance Companies) Directions, 2025, paragraph 14(14) (RBI). MODT stamp duty: Karnataka Stamp Act, 1957, Article 6, as amended by the Karnataka Stamp (Amendment) Act, 2023 (Act 4 of 2024), in force from 3 Feb 2024 (Karnataka Gazette). Interest on delayed possession: Karnataka RERA Rules, 2017, Rule 16 (Karnataka RERA). Lenders’ own published rates: SBI, Axis Bank, Bank of Baroda, HDFC Bank and LIC Housing Finance.
The repo-cut and balance-transfer examples are illustrative arithmetic on round loan amounts; your own lender’s rate, spread, fees and reset date will differ, and only its Key Facts Statement is a reliable comparison. This is a general guide, not financial advice.