Repo-linked, MCLR or fixed: how each home loan reacts to a rate hike, with a ₹50 lakh example

Rules and rates as of 12 October 2026.

On 7 October 2026 the RBI's Monetary Policy Committee raised the repo rate by a quarter point, from 5.25% to 5.50%. Every home loan borrower now wants to know one thing: when does my EMI change, and by how much? The honest answer is that it depends on what your loan rate is tied to. Three borrowers with the same ₹50 lakh outstanding can see three different outcomes, on three different dates.

The three ways a home loan rate is set

Repo-linked (external benchmark) loans

Since 1 October 2019, RBI rules have required banks to link every new floating-rate retail loan, home loans included, to an external benchmark. The bank can pick the RBI repo rate, a 3-month or 6-month Treasury bill yield published by FBIL, or another FBIL benchmark. Your rate is the benchmark plus a spread the bank sets.

Two rules make these loans predictable. First, the rate must be reset at least once in three months. Second, the spread is sticky: the credit risk part can change only if your credit assessment changes substantially, and the other parts (such as operating cost) can be altered only once in three years. So when the repo rate rises by 0.25%, your rate rises by 0.25% at the next reset.

MCLR-linked loans

Floating-rate bank loans taken between 2016 and September 2019 are usually linked to the bank's marginal cost of funds based lending rate, or MCLR. The bank works it out from four things: its marginal cost of funds, the negative carry on the cash reserve it must park with the RBI, its operating costs and a tenor premium. Banks must review and publish their MCLR every month.

Your loan's rate does not move every month, though. Under the RBI's Master Direction on interest rates on advances, the reset periodicity for an MCLR loan must be one year or lower, and it is written into your loan contract. Your sanction letter gives the reset period and the date it runs from. Because MCLR tracks the bank's whole cost of funds, a repo hike feeds into it gradually and not necessarily one-for-one.

Fixed-rate loans

A fixed rate does not move with the repo rate for as long as it is fixed. Many "fixed" home loans are fixed only for the first few years and then turn floating, so check the fixed period in your sanction letter.

Housing finance companies

The external benchmark rules sit in the RBI's Master Direction on interest rate on advances, which applies to scheduled commercial banks (excluding regional rural banks), small finance banks and local area banks. Housing finance companies and other NBFCs are not in that list, so the quarterly-reset rule does not bind them. HFC loans are usually priced off the lender's own reference rate; your loan agreement says how and when it can change.

How to tell which one you have

• Sanction letter or loan agreement. Look for words like "RLLR", "EBLR", "repo-linked", "MCLR" or the lender's prime lending rate. It will also give the spread and the reset frequency.
• The quarterly statement. Since the RBI's August 2023 directions on floating rate resets, lenders, HFCs included, must send you a statement at the end of every quarter showing principal and interest recovered, the EMI, the number of EMIs left and the annualised interest rate.
• Your loan date. A floating bank loan sanctioned after 1 October 2019 should be externally benchmarked. An older one is likely MCLR, unless you switched.
• Ask in writing. Request the benchmark, current spread and next reset date by email. A written answer is worth keeping.

Worked example: ₹50 lakh, 20 years left

Take a borrower with ₹50 lakh outstanding and 240 EMIs left in October 2026, paying an illustrative 8.25% a year. This rate is chosen for illustration only; your rate will differ. The EMI formula is:

EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)

Here P is ₹50,00,000, r is the monthly rate (8.25 ÷ 12 ÷ 100 = 0.006875) and n is 240. (1.006875)²⁴⁰ works out to about 5.1777, so EMI = 50,00,000 × 0.006875 × 5.1777 ÷ 4.1777, which is ₹42,603.

Now apply the hike under each type, with these assumptions:

• Repo-linked: the full 0.25% passes through, taking the rate to 8.50%, at a reset after three EMIs (the outer limit of the three-month rule). The new EMI is recalculated on the balance then left, over the remaining 237 months.
• MCLR: we assume the bank's MCLR has risen 0.15% by the loan's next annual reset, which falls after nine EMIs, taking the rate to 8.40%. This 0.15% is an assumption, not a forecast; MCLR moves can be bigger, smaller or later.
• Fixed: no change during the fixed period.

Loan type	When the rise reaches you	New rate	New EMI	Extra per month	Extra paid in first 12 months	Extra over remaining term
Repo-linked	Next reset, within 3 months (assumed after 3 EMIs)	8.50%	₹43,385	₹781	₹7,031	₹1,85,153
MCLR (assumed +0.15%)	Next 6 or 12-month reset (assumed after 9 EMIs)	8.40%	₹43,063	₹460	₹1,380	₹1,06,234
Fixed	Not during the fixed period	8.25%	₹42,603	₹0	₹0	₹0

All figures computed by us month by month and rounded to the nearest rupee, assuming the higher EMI option. If the lender keeps your EMI and stretches the tenure instead, you pay more in total interest; the RBI's 2023 directions say the lender must give you the choice of a higher EMI, a longer tenure or a mix of both at a reset.

The trade-off, in plain terms

The table shows the pattern, not a ranking. A repo-linked loan passes on a hike quickly and in full, but it passes on cuts the same way. An MCLR loan lags in both directions: the same delay that softens a hike today also slowed the pass-through of the cuts that took the repo rate down to 5.25%. A fixed rate buys certainty, usually at a higher starting rate than a floating loan, and the certainty lasts only as long as the fixed period.

Which of these suits you depends on how long you expect rates to stay high, how much room your budget has for a higher EMI, and how long you plan to keep the loan. Nobody, including the RBI, can tell you in advance which way rates will go next.

If you are weighing a switch, ask about the cost first

• MCLR to repo-linked, same bank. RBI rules say this switch shall not be treated as a foreclosure of your loan. For eligible borrowers the rules allow only "reasonable administrative/legal costs". Ask for that fee, the new spread, and the rate you would actually pay after the switch, in writing.
• Floating to fixed, same lender. Lenders may offer this at a reset under a board-approved policy, and the switching charges must be disclosed in the sanction letter. Ask how many switches are allowed and what rate the fixed option carries.
• Moving to another lender. Under the RBI's 2025 pre-payment directions, banks and NBFCs cannot levy pre-payment charges on floating-rate loans to individuals for non-business purposes sanctioned or renewed on or after 1 January 2026. Older loans fall under the rules in force when they were taken, so check your agreement. A new lender will still have its own processing, legal and stamp duty costs.

Put those costs next to the EMI difference from the table for your own loan. A switch that saves ₹400 a month but costs ₹20,000 upfront takes over four years to pay for itself.

This article explains how the rules work; it is not personal financial advice. For a decision on your own loan, a fee-only financial planner or chartered accountant can run the numbers with you.