What Happens to Your EMI When the Interest Rate Changes
Published 13 October 2026 · 6 min read · Clean EMI Editorial
Many home loans carry a floating rate, which means the rate can move after the loan starts. When it does, the bank adjusts your EMI, your tenure or both, depending on the loan terms. This article explains how a rate change reaches your monthly payment, using a ₹50 lakh loan at an illustrative rate of 8.5 per cent, which is not a bank quote.
Part of the Home Loan guide series.
Why a floating rate changes the EMI
A floating-rate loan is linked to a benchmark, and the bank resets the rate at set intervals under the loan terms. Each reset changes the monthly interest on the outstanding balance. The EMI must then either rise, or the loan must run for longer, so that the balance is repaid at the new rate.
The sanction terms set out how often the rate can reset and how the bank passes the change on to you. Read that section before you accept the loan.
A worked example at 8.5 per cent
Take a ₹50 lakh loan for 20 years at the illustrative rate. The EMI is ₹43,391. After five years, which is 60 payments, the outstanding balance is about ₹44,06,359. That balance is what the new rate applies to at the first reset.
What a one-point change adds each month
The easiest way to see the effect is to look at the interest. On the balance of about ₹44 lakh, a one percentage point rise adds roughly ₹3,672 of interest in a month. That extra interest has to be paid through a higher EMI or a longer tenure. A half-point change adds about half that amount.
A fall in the rate works the other way, but banks may not pass a cut through immediately. Check the reset terms rather than assuming the EMI will move with the benchmark.
The two ways a bank may adjust
- Keep the tenure: the EMI rises, so the loan ends on the same date and the monthly outgo goes up
- Keep the EMI: the EMI stays the same, so the loan runs for longer and the total interest rises
Some banks let you choose between the two when the rate changes, and others apply one method by default. Ask which applies to your loan. The home loan page covers the product in general. The guide to converting annual and monthly rates shows how the interest figure is worked out each month, and the EMI calculator helps you test the two outcomes.
What to ask the bank in writing
- What is the benchmark, the spread over it and how often does the rate reset?
- When the rate changes, do you adjust the EMI, the tenure or both?
- Is there a charge for changing the rate or the tenure? Check the bank’s schedule of charges.
- Can you switch to a fixed rate, and on what terms?
For the bank’s own profile, see Canara Bank. Any rate, reset or charge that applies to your loan is set out by the bank, The final decision rests with the lending bank.
Frequently Asked Questions
Will my EMI always fall when the rate falls?
Not always. The bank may reduce the EMI or shorten the tenure, but the timing and the method depend on your loan terms. Ask how a reduction would be applied.
Is a home loan EMI fixed for the whole term?
Not on a floating-rate loan. The EMI can change at each reset. A fixed-rate loan keeps the rate for an agreed period, subject to the bank’s terms.
What happens if the rate rises by one percentage point?
On the balance at the time, the monthly interest rises by a predictable amount. The bank then adjusts the EMI or the tenure according to the loan terms. The example in this article shows the size of the effect.
Useful free tools
- Free Credit Analyzer — Upload your CIBIL report and see which loans you may be eligible for, with an indicative EMI.
- Check my Loan Eligibility — Answer a few questions and see how your application would be routed to a PSU bank.
- Home Loan Balance Transfer Calculator — Compare your current EMI with a lower-rate loan over the same remaining tenure.
- Credit Score Enhancer — Practical steps to improve your CIBIL score before you apply for a loan.
Ready to check your eligibility?
No fee to apply. CIBIL score of 700 or above required.