If you took a home loan a few years ago, you may be paying more than a new borrower would. Banks do not always pass lower rates on to existing customers, so you often have to ask.
What the RBI circular says
In August 2023 the RBI issued rules on how lenders handle resets of floating rates on EMI-based loans, which include home loans. They apply to loans from 2024 onwards and to older loans at their next reset. The main points:
- When your rate is reset, the lender must offer you the option to switch to a fixed rate.
- You can choose whether a change in rate shows up as a different EMI or a different tenure, or a mix of both.
- The lender must disclose the charges for these switches and tell you clearly the rate, the EMI and the tenure, and your statements must show the principal and interest outstanding.
- Ask for the benchmark and the spread in writing, so you know exactly which part of your rate can be negotiated.
These rules protect you from quiet increases in tenure. They do not force a bank to reduce your rate, so the next steps still matter.
Step 1: find your rate and spread
Look at your loan statement or sanction letter. Note your current rate, the benchmark it is linked to and the spread. The spread is the part you can negotiate. The benchmark moves on its own.
Step 2: compare with today's offers
Check what the same bank charges new customers, and what other banks offer. Our interest rates page lists starting rates from ten lenders. If your rate is well above the current offer, you have a case.
Step 3: ask for a spread reduction
Most banks have a repricing or "rate conversion" option that moves you to the rate offered to new customers. It usually costs a one-time fee, often a small percentage of the outstanding amount, plus taxes. Write to the bank, quote the lower rate you have seen, and ask for the fee in writing.
Step 4: consider a balance transfer
If your bank refuses, you can move the loan to another lender at a lower rate. A transfer involves a new processing fee, legal and valuation checks and some paperwork. It usually makes sense when the rate gap is large and a lot of the loan is still left to repay.
A worked example
You owe 50 lakh with 20 years left at 8.5%, and your EMI is about 43,391. Your bank agrees to reprice you to 8.0% for a fee of 0.25% of the balance, which is 12,500 plus tax.
- New EMI at 8.0% is about 41,822, which is about 1,569 less every month.
- Total interest over 20 years falls from about 54.14 lakh to about 50.37 lakh, a saving of about 3.77 lakh.
- The fee is recovered in about eight months.
If you keep paying the old EMI of 43,391 at the new rate, you also clear the loan sooner. This is the best use of the savings if your budget allows.
Step 5: choose EMI or tenure carefully
When your rate drops, you may be given the choice between a lower EMI and a shorter tenure. A shorter tenure saves more interest. A lower EMI helps your cash flow. If the bank makes the choice for you, check that it did not stretch your tenure.
What to watch for
- Fees and taxes on repricing or transfer. Compare them with the total savings, not just the monthly saving.
- A new lock-in or a hidden change to the spread.
- A transfer that restarts a long tenure. Ask to keep the original end date.
Plan before you call
Use the calculator to try your current rate against the lower one, then use the rate-change panel to see the monthly and lifetime saving. Take those numbers with you when you ask the bank.