Rajesh cut his EMI with 1 smart ask - The RBI just made it easier for you

A new rule from the RBI means banks can now reduce the 'spread' part of your floating-rate home loan sooner - and borrowers are waking up to the opportunity.

Tired of watching new borrowers get lower home loan rates while you’re stuck paying the old one? The RBI has just levelled the playing field. Starting October 2025, banks can reassess your home loan rate spread whenever your credit profile improves, giving you a real shot at reducing your EMI without waiting years.

 

What exactly changed

 

Under the previous regime, when you had a floating-rate home loan linked to an external benchmark (such as the repo rate), your total rate would typically be:

• Benchmark Rate (e.g., Repo) + Bank’s Spread
• The “spread” reflects your credit profile, tenure, bank margin, etc.

 

Until recently, banks were restricted from altering the non-credit-risk component of the spread for three years after sanction, even if you improved your credit profile or the bank decided to forego margin.

 

From October 1, 2025 the RBI has removed that lock-in. Now banks can reduce the spread component “earlier than three years” for existing loans, under justifiable, non-discriminatory grounds. 

 

In addition, at the time of interest-rate reset for floating loans, borrowers may have the option to switch to a fixed-rate regime — giving more flexibility.

 

Why this matters for you

 

If you’ve improved your credit score, reduced other debts, or generally become a lower risk borrower, you now have a better chance of negotiating a lower spread and hence a lower interest rate (EMI) on your existing home loan.

 

The reform enhances policy transmission — that is, when the RBI cuts benchmark rates, the benefit can flow to your EMI more quickly. 

 

It also levels the playing field between new borrowers and existing borrowers — earlier, new borrowers benefited from rate cuts or competitive offers while older loans were stuck with higher spreads.

 

Real-life scenario — how you could benefit

 

Check your recent credit-profile improvement (reduce unsecured debt, maintain good repayment history).

 

Approach your bank and ask “Will you reassess my spread component given my improved score?”

 

Compare current home-loan offers from other banks — a competitive offer gives you leverage to negotiate with your bank.

 

If during the next reset your bank offers you switching to fixed rate (and you’re comfortable with rate risks) weigh that too.

 

 Things to watch

 

• Make sure your loan is floating-rate & benchmark-linked (like EBLR/Repo) where this rule applies. 
• The rule is not automatic — banks must apply internally and justify reductions; you’ll need to request and negotiate.
• Compare overall cost (interest rate, tenure, switching cost) before making changes.
• If switching to fixed rate, assess whether you’re comfortable with locked-in higher rate if hikes happen.
• Keep tabs on hidden charges, processing fees, balance-transfer implications

 

Example:

When Rajesh bought his home five years ago, his EMIs felt like a mountain he had to climb each month. He paid on time, managed his expenses well, and even improved his credit score. But despite becoming a more responsible borrower, his interest rate barely moved.

 

Financial advisor Vijay Maheshwari explains:

 

What’s the change?

 

Your home loan interest rate has two parts:

RBI benchmark rate

Bank’s spread (based on your credit profile and bank’s margin)

 

Earlier: Banks could only change the spread once every 3 years, even if your credit score improved.

 

Now: RBI has removed this restriction. Banks can reassess your spread anytime, giving you the chance to lower your interest rate.

 

How Rajesh took advantage:

 

Checked his credit profile — it had improved over time.

Asked his bank to reassess his interest rate.

Compared offers from other banks to negotiate better terms.

Leveraged competing offers to waive extra charges.

 

The result:

 

Rajesh now has a more manageable EMI.

Rajesh’s interest rate was cut by 0.35%, saving him nearly ₹1,500 every month — and over ₹5 lakh in interest over his loan tenure.