Banks raise home loan rates after RBI repo rate hike: Want to move back to lower-interest loan? Know this hidden cost

The RBI increased the repo rate by 25 basis points to 5.50% on October 7. Changes in the repo rate can directly affect repo-linked loans, prompting banks to revise their lending rates.

Recently, India's biggest PSU bank, State Bank of India (SBI), has increased its benchmark lending rates by 25 basis points (bps), raising borrowing costs for home loan customers whose interest rates are linked to these benchmarks.

The revision, effective 15 October 2026, increases the External Benchmark Linked Rate (EBLR) to 8.15%, up from the existing rate of 7.90%.

Many existing home loan borrowers may want to switch to lower interest rates. However, there is a hidden cost to switching even within the same bank: conversion charges.

What conversion charges do banks levy?

Siddharth Maurya, Founder & Managing Director, Vibhavangal Anukulakara, said banks may impose a conversion or repricing charge in case the home loan customer wants to get a lower interest rate through alteration of the relevant spread or changing of schemes.

Kapil Makhija, COO at MinEMI, said banks typically charge 0.25% to 0.50% of the outstanding principal, plus GST, although some levy a flat fee. For a home loan with an outstanding balance of ₹60 lakh, a 0.5% conversion fee would amount to ₹30,000.

HDFC's official schedule specifies a conversion charge of 0.25% of the outstanding principal, capped at ₹5,000 plus applicable taxes, for certain fully drawn home loans. Kotak Mahindra Bank charges 0.5% of the outstanding loan amount, capped at ₹10,000 plus taxes, for switching between floating-rate schemes on certain housing loans, Maurya added.