Home loan spread explained: what a quarter of a percent costs
Your floating home-loan rate is two numbers added together: a benchmark that moves (for most new loans, the RBI repo rate) and a spread that your lender sets once. The benchmark is public. The spread is the part you can compare, negotiate before you sign, and ask about afterwards. On a 20-year loan, a quarter of a percentage point of spread is worth lakhs.
What a different spread costs over the loan
| If the spread were | Rate | EMI | Total interest | Difference |
|---|
Constant-rate illustration of what the spread alone is worth. It does not forecast the benchmark.
What the spread is made of
The spread covers the lender's credit risk, operating costs and margin. Under RBI's external benchmark framework, the spread on your loan can change during the loan only when your credit assessment changes materially, as agreed in the loan contract. It is not meant to move every time the benchmark moves. Check your agreement for the wording.
Questions to put to your lender
- What is the benchmark, and what is my spread today?
- Is the spread fixed in the agreement? Under what conditions can it change?
- What would the spread be if I took the loan today, as a new customer?
- What does it cost to move to a lower spread on the same loan?
To see how the benchmark part moves your loan reset by reset, run your loan free.
Questions
What is the spread on a home loan?
The fixed margin your lender adds to the benchmark (such as the repo rate) to arrive at your rate. The benchmark moves with the market; the spread is set by the lender in your agreement.
Can my lender change my spread?
Under RBI's external benchmark framework the spread can change during the loan only on a material change in your credit assessment, as agreed in the contract. Read the clause in your loan agreement.
How much does 0.25% of spread cost?
On a Rs 50 lakh, 20-year loan at 8.15%, an extra 0.25% adds about Rs 785 a month and roughly Rs 1.9 lakh of interest over the full loan. The calculator above shows the figure for your own amount and tenure.