Your floating rate went up: RBI's reset rules let you choose EMI or tenure, and maybe fixed

Rules and rates as of 14 October 2026.

On 7 October 2026 the RBI raised the repo rate by 25 basis points to 5.50% (press release 2026-2027/1264). If your home loan is on a floating rate, a higher rate is coming at your next reset. What many borrowers do not know is that the lender does not get to decide on its own how that higher rate is absorbed. RBI rules give you a say.

When the new rate reaches you

For a bank loan linked to an external benchmark such as the repo rate, the RBI's Interest Rates on Advances Directions, 2025 for commercial banks say the rate must be reset at least once in three months. So the quarter-point should show up within one quarter. Older MCLR-linked loans reset on the date and at the interval written into your loan agreement. Loans from housing finance companies follow the lender's own reference rate and its loan terms.

What the 2023 reset rules require

The RBI's circular of 18 August 2023, "Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans", is addressed to commercial banks, co-operative banks and NBFCs, including housing finance companies. The RBI's own FAQ on it discusses housing loans, and a home loan you repay in EMIs falls within it. Lenders had to extend it to existing as well as new loans by 31 December 2023. In plain terms, it requires the following.

• Headroom and disclosure at sanction. The lender must assess whether you can afford a longer tenure or a higher EMI if rates rise, and must tell you upfront how a benchmark change could affect your EMI, tenure or both.
• Prompt notice. Any increase in EMI or tenure caused by a benchmark change must be communicated to you immediately.
• Your choice at reset. You must be offered a higher EMI, a longer tenure, or a combination of the two.
• Prepayment at any time. You can prepay in part or in full at any point in the loan, with any charges governed by the separate RBI rules on that subject.
• No negative amortisation. Stretching the tenure must not leave your EMI too small to cover the month's interest.
• A quarterly statement. At the end of each quarter the lender must give you a simple statement showing principal and interest recovered so far, the EMI, the number of EMIs left and the annualised rate for the full tenure.
• Charges in writing. Any charge for switching from floating to fixed, and any other service charges, must be disclosed in the sanction letter and whenever they are revised.

The fixed-rate switch is now the lender's choice

This is the part that changed most recently. The 2023 circular originally said lenders shall offer borrowers the option to switch to a fixed rate at reset. An RBI amendment dated 29 September 2025, in force from 1 October 2025, changed that: lenders now may, at their option, offer the switch under their board-approved policy, and that policy can cap how many times you may switch during the loan.

The sources conflict on this, and the later one wins. An RBI FAQ on the circular, published as a PDF in January 2025, still says lenders must offer a fixed-rate product in each category of EMI-based personal loans. The September 2025 amendment revised that FAQ and deleted two of its answers. If a bank tells you it does not offer a fixed-rate switch, that is now allowed. If it does offer one, the rate and the switching fee should be in writing before you agree.

The RBI has also been folding its circulars into consolidated directions since November 2025, so your lender may quote a newer document number for these same rules.

Worked example: ₹50 lakh over 20 years

Take a fresh ₹50 lakh loan for 240 months at an illustrative 7.75%, which then resets to 8.00% after the quarter-point hike. The rates are assumptions for the example, not quotes from any lender. The EMI formula is:

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

P is ₹50,00,000, r is the monthly rate and n is the number of months.

• At 7.75%: r = 7.75 ÷ 1,200 = 0.0064583. (1.0064583)²⁴⁰ = 4.6880. EMI = 50,00,000 × 0.0064583 × 4.6880 ÷ 3.6880 = ₹41,047.
• At 8.00%, same 240 months: r = 0.0066667. (1.0066667)²⁴⁰ = 4.9268. EMI = 50,00,000 × 0.0066667 × 4.9268 ÷ 3.9268 = ₹41,822, or ₹775 more a month.
• At 8.00%, EMI kept at ₹41,047: solving n = −ln(1 − P × r ÷ EMI) ÷ ln(1 + r) gives 251.6 months, so 251 full EMIs and a final part-EMI of ₹24,396. The loan runs one year longer.
• A mix, tenure stretched by six months to 246: EMI = ₹41,410, ₹362 more a month.

Option at reset	Monthly EMI	Months	Total interest	Extra interest vs 7.75%
Before the hike (7.75%)	₹41,047	240	₹48,51,383	nil
Higher EMI (8.00%)	₹41,822	240	₹50,37,281	₹1,85,898
Mix (8.00%)	₹41,410	246	₹51,86,825	₹3,35,442
Longer tenure (8.00%)	₹41,047	252	₹53,27,193	₹4,75,811

All figures were computed in Python, month by month for the longer-tenure row, and rounded to the rupee. They assume the rate stays at 8.00% for the rest of the loan, which it will not.

The pattern is what matters. Keeping the EMI flat feels painless, but on these numbers it costs about ₹2.9 lakh more in interest than paying ₹775 extra a month. The earlier in the loan the hike lands, the wider that gap, because more of each EMI is still going to interest.

Where negative amortisation starts

In the first month at 8.00%, interest on ₹50 lakh is 50,00,000 × 0.0066667 = ₹33,333, comfortably below the ₹41,047 EMI. The EMI would stop covering the first month's interest only if the rate reached about 9.85% (41,047 × 1,200 ÷ 50,00,000). That is the floor the RBI rule protects: a lender cannot keep stretching your tenure until your balance grows instead of shrinking.

What to ask your lender

• The benchmark, your spread and the date of your next reset.
• Whether the lender will raise the EMI or extend the tenure by default, and how to choose the other option.
• Whether it offers a switch to a fixed rate, at what rate, for how long it stays fixed, and what it charges.
• Your latest quarterly statement, if you have not been getting one.

If the lender does not respond, you can escalate through its grievance officer and then the RBI's complaint system. For how the choice fits your taxes or wider finances, a chartered accountant or fee-only adviser can run your own numbers.