What is a floating-rate loan?

A floating-rate loan does not keep one interest rate for the whole tenure. The rate is a benchmark plus a spread. When the benchmark moves, the rate on your loan moves, on the reset dates in the agreement. A fixed-rate loan keeps the rate you were given, for the period the agreement calls fixed.

From 1 October 2019, banks have had to benchmark new floating-rate personal and retail loans, including housing loans, and floating-rate loans to micro and small enterprises, to an external benchmark. Circular RBI/2019-20/53 of 4 September 2019 lists the policy repo rate, the 3-month Treasury bill yield published by Financial Benchmarks India Private Ltd, the 6-month yield published by the same company, or another benchmark that company publishes. A bank picks one benchmark for a loan category. The rate under that benchmark resets at least once in three months. The spread is the bank’s, and it belongs in the sanction letter.

A reset is not only a new number on a letter. Circular RBI/2023-24/55 of 18 August 2023, updated on 1 October 2025, covers EMI-based personal loans. At sanction the lender tells you that a benchmark change can move the EMI, the tenure, or both. At the reset you must be given the choice to raise the EMI, lengthen the tenure, or do both, and the choice to prepay part or all of the loan. A switch to a fixed rate is a choice the lender may, at its option, offer under its board policy. The updated wording is narrower than the 2023 text, which required that switch. Any fee for the switch has to be disclosed. The tenure cannot be lengthened into negative amortisation, a balance that grows because the EMI does not cover the interest.

Prepayment of a floating-rate home loan to an individual, for a purpose other than business, does not carry a charge when the loan was sanctioned or renewed on or after 1 January 2026. The prepayment guide uses an illustrative rate so the EMI and the tenure can be compared. It is not a lender’s card. Current cards are on the home-loan rates page, and the repo rate is on the policy-rates page.

A reset letter that only says the rate has changed, with no new EMI and no new last date, is incomplete. Ask for both. If the tenure has been stretched, check that the balance is still falling. A growing balance means the EMI is not covering the interest, which the reset circular tells lenders not to allow.

Checked on 3 November 2026. The rate in your sanction letter, and the benchmark named there, are the ones that move your EMI.