Your home loan interest rate has two parts. One part is a benchmark that moves with the market. The other part is the spread, an extra margin your lender adds on top. When RBI changes the repo rate, the benchmark moves. The spread usually stays the same. That is why two people with loans from the same bank can pay different rates, and why the spread is often the part worth asking about.
What is the spread in a home loan?
Think of your rate as a simple sum:
Your interest rate = benchmark rate + spread
- Benchmark: a reference rate your loan is linked to. Since 1 October 2019, banks must link new floating-rate retail loans, including home loans, to an external benchmark. The options RBI allows are the RBI repo rate, the 3-month or 6-month Treasury Bill yield published by FBIL (Financial Benchmarks India), or another FBIL-published market rate. Many banks use the repo rate, the rate at which RBI lends to banks.
- Spread: the margin the bank adds over that benchmark. It is set when your loan is sanctioned and written into your loan terms.
Example: if the repo rate is 5.50% and your spread is 3.00 percentage points, your rate is 8.50%. On 7 October 2026, RBI raised the repo rate by 0.25 percentage points to 5.50%. A repo-linked loan like this one would move to 8.75% at its next reset. The spread would stay at 3.00 points.
Banks call a repo-linked rate an EBLR (external benchmark lending rate) or RLLR (repo-linked lending rate). Some banks first add a fixed mark-up to the repo rate to build their EBLR, then add or subtract a further amount based on your profile. Both parts together are your spread over repo. The external benchmark rule covers banks. Housing finance companies and NBFCs (non-bank finance companies) often price loans off their own benchmark rate, so ask them how their rate is built.
What makes up the spread?
RBI's rules for banks talk about two kinds of components in the spread over an external benchmark:
- Credit risk premium: the extra the bank charges for the risk it sees in lending to you. Your credit score often plays a part. Some lenders also price by loan amount or by whether you are salaried.
- Other components, including operating cost: the bank's cost of running the loan and its business choices.
You can see risk-based spreads in published rate sheets. Union Bank of India's retail rate sheet effective 8 October 2026 sets its EBLR at 8.25% (repo 5.50% + 2.75%). Its home loan rates for salaried borrowers then move up or down from that EBLR by credit score band:
| CIBIL score band | Union Home rate (salaried) | Total spread over repo (5.50%) |
|---|---|---|
| 825 and above | 7.40% (EBLR − 0.85%) | 1.90 points |
| 800 to 824 | 7.45% (EBLR − 0.80%) | 1.95 points |
| 700 to 749 | 8.00% (EBLR − 0.25%) | 2.50 points |
| 680 to 699 | 8.25% (EBLR) | 2.75 points |
| 650 to 679 | 9.10% (EBLR + 0.85%) | 3.60 points |
| 600 to 649 | 9.60% (EBLR + 1.35%) | 4.10 points |
In this one grid, the gap between the best and worst band is 2.20 points, and it comes entirely from the spread. Other lenders use different bands and numbers. Rate sheets change often, so check the lender's current page.
Can your bank change your spread during the loan?
For bank loans linked to an external benchmark, RBI's rules say:
- The bank is free to decide the spread when it gives the loan.
- The credit risk premium may change only when your credit assessment changes substantially, as agreed in the loan contract.
- Other components of the spread, including operating cost, can be changed once in three years.
This works both ways. If your credit profile gets much worse, your contract may allow the bank to raise the risk premium. If it gets much better, you can ask the bank to review it. Whether it agrees is the bank's decision. Read the interest rate clause in your sanction letter to see what your contract says.
Why might your spread be higher than a new borrower's?
Banks reprice their offers for new borrowers from time to time. Your spread, though, was locked in on the day your loan was sanctioned. If your bank now offers new borrowers with your profile a lower spread, you keep paying the old one unless you ask. Your credit score may also have improved since you took the loan. Both are common reasons to request a review.
To find your spread, look at your sanction letter, loan agreement or loan statement. It often shows the benchmark and the margin separately, for example "RLLR + 0.50%" or "repo + 2.90%". If it does not, ask the bank in writing.
How much can a lower spread save?
Say you owe ₹40,00,000 with 18 years (216 months) left. Your rate is repo 5.50% + a 3.25-point spread = 8.75%. Your bank agrees to cut the spread to 2.75 points, so the rate becomes 8.25%.
The EMI (equated monthly instalment) uses the standard formula: EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1). Here P is the amount you owe, r is the monthly rate (yearly rate ÷ 12 ÷ 100) and n is the months left.
| 8.75% (spread 3.25) | 8.25% (spread 2.75) | |
|---|---|---|
| Monthly EMI | ₹36,836 | ₹35,606 |
| Total interest over 216 months | ₹39,56,493 | ₹36,90,876 |
| Saving | — | ₹1,230 a month; ₹2,65,617 in interest |
If you keep paying the old EMI of ₹36,836 at the new rate, the loan ends in about 201 months instead of 216. Total interest falls to about ₹33,79,697, a saving of about ₹5,76,796.
Banks may charge a fee for this kind of change, plus GST. Each bank sets its own fee, so ask yours for the amount in writing and check its current Key Facts Statement or fee page. If, say, the all-in fee were ₹5,900 (an assumed figure), a saving of ₹1,230 a month would recover it in about 5 months (₹5,900 ÷ ₹1,230 is about 4.8).
These figures assume the repo rate stays at 5.50% for the whole loan. It will move, but your spread saving stays in place whatever the repo rate does.
How do you ask your bank to cut the spread?
- Find your current spread and benchmark from your sanction letter or statement.
- Check what the bank offers new borrowers with a profile like yours on its rate page.
- Download your credit report. If your score has gone up since the loan began, note it.
- Collect one or two written offers from other lenders. They show what the market would charge you today.
- Write to your bank. Ask for a review of your spread, and for the fee and new rate in writing.
- Confirm the details: the new spread, the date it applies from, and whether your EMI or your tenure will change. Ask for an updated repayment schedule.
If you are still on an older benchmark such as MCLR (marginal cost of funds based lending rate) or base rate, ask about moving to the bank's repo-linked rate at the same time.
What if the bank says no?
You can move the loan to another lender through a balance transfer. That usually costs more than a spread change, because of processing, legal and stamp duty charges. Work out the break-even first: total switching cost ÷ monthly EMI saving. A lender's answer is its own commercial decision, and no rate is guaranteed, but asking costs nothing.
Do it in 10 minutes, free
Put your loan details into the rate change calculator on LowerMyEMI to see what a lower spread does to your EMI and total interest. Then use the ready letter to ask your own bank for a spread review, and send one email per lender, from your own email, to collect competing offers. LowerMyEMI is free and is not a bank, NBFC or loan agent.