In short
On 7 October 2026 the RBI’s Monetary Policy Committee raised the policy repo rate by 25 basis points to 5.50%, and changed its stance to “calibrated tightening”. This reverses the cycle of cuts, so do not read older articles that speak of a falling repo rate. Floating-rate home loans from banks are linked to an external benchmark such as the repo rate and must be reset at least once every three months, so most of your EMI change arrives at your next reset. The RBI’s average rate on fresh housing loans of scheduled commercial banks was 7.61% in August 2026 (provisional; 8.61% for all sectors).
What the RBI decided
According to the Governor’s Statement of 7 October 2026 (the meeting ran 5 to 7 October):
| Rate | Level |
|---|---|
| Policy repo rate (LAF) | 5.50%, up 25 basis points |
| Standing deposit facility (SDF) | 5.25% |
| Marginal standing facility (MSF) and Bank Rate | 5.75% |
| Stance | Changed to calibrated tightening |
The committee voted unanimously to increase the repo rate. The statement does not mention housing loans. It does say, in a footnote, that between July and August 2026 the weighted average lending rate on fresh rupee loans hardened by 8 basis points and the rate on outstanding loans was unchanged, while fresh term deposit rates fell by 28 basis points. It attributes the slower pass-through to lending rates to strong credit demand and a shift in the lending mix. The statement is dated before the effect of the hike on lending rates, so there is no published figure yet for the transmission of this decision.
How a repo-linked loan works
The RBI’s Directions on interest rates on advances for commercial banks (28 November 2025) say:
- Which loans: floating-rate personal or retail loans, housing loans among them, and floating-rate loans to micro and small enterprises must be benchmarked to an external benchmark (paragraph 25).
- Which benchmarks: the RBI policy repo rate, or the three-month and six-month Treasury Bill yields published by FBIL, or another benchmark published by FBIL (paragraph 5(4) in the summary of the text we read). The bank must use one external benchmark within each loan category (paragraph 27).
- The formula: lending rate = benchmark + spread, and the benchmark forms part of the loan contract.
- Reset: “The interest rate under external benchmark shall be reset at least once in three months” (paragraph 38). The exact periodicity of reset must be in the loan contract (paragraph 36).
- Spread: the credit risk premium may change only when your credit assessment undergoes a substantial change; other parts of the spread, such as operating cost, may be altered once in three years (paragraph 33). Reductions “for customer retention” are allowed earlier, on justifiable grounds and under the bank’s policy.
An older loan linked to a bank’s internal rate (MCLR or similar) is not on this mechanism. The Directions allow an existing borrower with a term loan eligible for pre-payment to move to an external benchmark without charges or fees, “except reasonable administrative / legal costs”, at the rate that would apply to a new loan of the same category, type, tenor and amount at origination, and this switch “shall not be treated as a foreclosure”. Other existing borrowers may move on “mutually acceptable terms”. Our source is a tool summary of RBI text; read paragraphs 25 to 41 and the switching provisos on the RBI page.
What a rise of 25 basis points does to an EMI
This is a calculation, not a forecast. Take a loan of ₹50 lakh over 240 months at the 7.61% average rate for fresh housing loans in August 2026: the EMI is about ₹40,617. If a lender passed the full 0.25 percentage point through (7.86%) and the tenor stayed at 240 months, the EMI would be about ₹41,387, which is ₹771 a month more. Whether the lender raises the EMI or lengthens the tenor is a point of your loan agreement. See the formula in home loan eligibility and EMI.
Other figures the RBI published
In its release of 30 September 2026 the RBI gave the weighted average lending rate on outstanding rupee loans as 8.96% in August 2026 and the median one-year MCLR as 8.61% in September 2026. These are all-loan figures. The sector table of the same release (Table 9, fresh loans) gives 7.61% for housing in August 2026 (provisional), and Table 8 gives 7.70% for outstanding housing loans.
Choosing between a lower rate and a switch
Because floating-rate individual loans sanctioned on or after 1 January 2026 carry no pre-payment charge, switching lenders or paying down the loan is cheaper than before. See home loan prepayment charges. Compare the full cost, not only the headline rate.
What it costs
The rate you pay is the benchmark plus the lender’s spread. Ask for the benchmark, the spread, the reset date and the conditions under which the spread can change, all in writing, and for the charges in the sanction letter.
Which professional to consult
Your home loan lender for the rate, the spread and the reset date. A property lawyer (an advocate enrolled with the State Bar Council) can read the clause on rate resets in the loan agreement.
Frequently asked questions
What is the repo rate today?
5.50%, since the decision announced on 7 October 2026, up 25 basis points.
Will my EMI rise immediately?
Not on the day. A repo-linked loan is reset at least once every three months, and your contract states the reset date and what changes: the EMI or the tenor.
Does the lender’s spread change when the repo rate changes?
No. The spread is separate from the benchmark. Under the RBI Directions, the credit risk premium may change only when your credit assessment changes substantially, and other spread components may be altered once in three years.
Is the 7.61% rate what I will pay?
No. It is the average rate on fresh housing loans of scheduled commercial banks in August 2026 (provisional). Your rate depends on your lender’s benchmark and spread.
Can I move my old loan to the repo-linked rate?
The Directions allow it. For a term loan eligible for pre-payment the switch is without charges or fees, except reasonable administrative and legal costs. Ask your lender in writing.
More guides on financing
Sources
- Governor's Statement, Monetary Policy Committee, 5-7 October 2026 (RBI) (consulted 14 October 2026)
- Lending and Deposit Rates of Scheduled Commercial Banks, September 2026 (RBI) (consulted 14 October 2026)
- Sector-wise weighted average lending rates, Tables 8 and 9, data file (RBI, 30 September 2026) (consulted 14 October 2026)
- Reserve Bank of India (Commercial Banks – Interest Rates on Advances) Directions, 2025 (consulted 14 October 2026)
- Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025 (consulted 14 October 2026)