Lesson 2 of 3 · 5 min
Floating, fixed, and the repo pipe
Since 2019, new floating-rate home loans from banks have been pinned to the repo rate, so RBI's announcements reach your own EMI within a quarter.
A fixed-rate loan charges the same rate through its fixed term, whatever the economy does. A floating rate moves.
Since October 2019, RBI has required new floating-rate home loans from banks to be linked to an external benchmark — almost always the repo rate, the rate at which RBI lends to banks. Your rate is then the repo plus a spread, reviewed at least once every three months.
Quick check
RBI cuts the repo rate by 0.50%. Your home loan is repo-linked. What happens?
| Question | Floating (repo-linked) | Fixed |
|---|---|---|
| What moves the rate? | Repo changes, passed through at resets | Nothing, during the fixed term |
| When the repo falls | Your cost falls with it | You watch from the shore |
| When the repo climbs | Your cost climbs — via the EMI or a stretched tenure | You are sheltered for the term |
| Charges for prepaying | Not allowed for individual borrowers | Can apply — the sanction letter lists them |
Check yourself
1 / 3
Kabir asks
What did the October 2019 rule change for new floating-rate home loans from banks?
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