Your home loan rate moves every month now: how to check it, choose lower EMI or shorter tenure, and push back

A colleague in Baneshwor has a Rs 50 lakh home loan with a big commercial bank. Every month for a year he has watched news of falling base rates, and every month his EMI has stayed exactly the same, to the rupee. He was about to write an angry email. Then he scrolled down his loan statement and found the line he had never read: remaining instalments. It had dropped by more than two years.

The bank had passed on the cut. It just passed it on as time, not cash. That is the default under NRB's rules, and most borrowers never find out they can ask for the other option.

The rule changed, and the quarterly story is out of date

Until 2023, banks could revise a floating loan rate only once a quarter. In May 2023 NRB switched to monthly adjustments. The current version sits in the interest-rate directive inside NRB's Unified Directive 2082, issued in Magh 2082.

What it requires of banks, in plain terms:

• Monthly change. A floating loan rate must move each month, by up to the change in the average base rate of the previous three months.
• Automatic. The change runs through the bank's core banking system, not a branch decision.
• Written in your offer letter. Whether your rate follows the three-month average must be stated clearly there.
• Cuts for everyone. A bank may cut by more than the base-rate change or skip a rise, but it must apply that equally to all customers.
• A floor. No loan can be priced below the bank's own three-month average base rate.

Banks compute the base rate monthly, report it to NRB within seven days of month-end, and must publish both the monthly figure and the three-month average on their website. They must also keep three years of rate, base-rate and spread history online. That history is what you use to audit your own loan.

Reset dates differ by bank. Nabil's rate sheet says floating rates revise "with effect from the 1st day of every month." Nepal Bank applied its latest figure from 11 Kartik 2083, and Rastriya Banijya Bank from 9 Kartik.

First check: are you even on floating?

Most people assume their home loan floats. The directive says otherwise. Personal term loans of more than a year, with home, auto and hire-purchase loans named explicitly, carry a fixed rate for the whole tenure by default. Floating applies only if the customer asks for it. This dates back to a September 2020 NRB instruction.

A fixed rate does not follow the base rate down. With your written consent it can be reviewed first after seven years, then every five, and not for any other reason. If your rate has sat still through two years of falling base rates, pull your offer letter before you call the branch. The floating vs fixed guide covers the switching decision.

Where base rates are now

The base rate is the half of your floating rate that moves on its own. The other half, the premium, is fixed in your loan letter and is covered in the premium negotiation post.

Commercial-bank averages, from NRB data:

A year earlier, at Bhadra-end 2082, the comparable figures were 5.72% and 7.66%. Banks have money they cannot lend: the Kathmandu Post counted Rs 1.56 trillion in surplus loanable funds on 11 October, and NRB moved to absorb Rs 150 billion through a deposit auction at the end of the month.

Individual banks, as published:

Nepal Bank's own monthly sequence shows the drip in action: 4.50% from 7 Shrawan, 4.45% from 7 Bhadra, 4.41% from 7 Ashoj, 4.38% from 11 Kartik. Small steps, every month.

Run the check on your own loan

You need three numbers: your premium from the offer letter, your bank's three-month average base rate for this month, and your current rate from the latest statement.

Nepal Bank's Kartik 2083 rate sheet prices floating home loans at base rate plus 2.42. Using its published base rates, a borrower on that premium should have moved roughly like this (my arithmetic):

If your statement shows a rate above base rate plus your premium, something is off. If it matches, the cut reached you, and the only question left is how you received it.

Lower EMI or shorter tenure

NRB's loan classification directive settles this in a single clause. For EMI loans, a change in tenure caused by a floating-rate change is not counted as restructuring. A change in the EMI after a rate change is allowed if the borrower asks in writing, after the bank analyses the borrower's income, and at most once a year.

So the default is that your EMI stays put and the loan ends sooner. A lower EMI is yours to request.

Here is what the choice is worth on a Rs 50 lakh loan with 20 years left, moving from 7.67% to 6.80%. Standard EMI formula, rate held constant from here, so read it as an illustration:

The EMI cut frees about Rs 2,600 a month. Keeping the EMI finishes the loan roughly two and a half years early and saves about Rs 6 lakh more interest than taking the lower EMI.

Which is right depends on your month, not on the math. If the EMI is squeezing your monthly budget or you have no emergency fund, the lower EMI buys breathing room. If cashflow is comfortable, the bank's default is quietly the better deal. Since the EMI request is limited to once a year, avoid using it on a small cut. Wait until several months of falls have added up.

When to push back, and how

Rate changes do not come with advance notice. The directive requires banks to tell affected customers immediately by SMS or email when a loan rate changes, and to publish next month's rates before the Nepali month begins. If you never got that SMS, update your mobile number and email with the branch.

Push back when any of these is true:

• Your all-in rate is above the bank's current three-month average base rate plus your premium.
• The base rate has fallen for several months but neither your rate nor your remaining instalments moved.
• You asked for floating and the bank put you on fixed, or the reverse.
• You were charged a review or renewal fee on an instalment loan. The consumer protection directive bars those during the tenure, and overcharged fees must be refunded plus 10%.

The route:

1. Write to the bank's grievance officer. NRB's consumer protection directive requires every bank to run a grievance desk with an officer at senior-manager level or above, with name, phone and email on the website's front page. Attach the offer letter, the base-rate history page and your calculation.
2. Escalate to NRB. NRB suspended its Gunaso Sunuwai portal on 9 Kartik 2083 over security concerns, with no restoration date. Complaints go to gunaso@nrb.org.np in the meantime.

NRB has acted on rate abuse before. In 2022 it made 25 banks refund more than Rs 4.5 billion collected through unauthorised premium increases, as the premium post explains.

Why falling rates are not hurting your bank

A final point that explains the bank's behaviour. NRB caps the average interest spread for class A banks at 4.0%. Banks are running well under it: Rastriya Banijya Bank reported 3.35% for Ashoj 2083, and aggregator data for Bhadra 2083 puts Nabil at 3.11% and Standard Chartered at 3.71%. A falling base rate means falling deposit costs too, so the bank's margin holds while your rate drops. Keeping your EMI constant also keeps their monthly cash coming in. Neither is wrongdoing, but neither works in your favour unless you ask.

What you actually need to know

1. Floating rates move monthly, and fixed is the default for home loans. Read your offer letter to know which you have, then check your rate against your bank's published three-month average base rate plus your premium.
2. Banks pass on cuts as shorter tenure unless you ask otherwise. A written request can lower your EMI, once a year. Keeping the EMI saves more interest; lowering it frees cashflow.
3. Complain with paperwork, and remember switching is cheap below Rs 50 lakh. Grievance officer first, then gunaso@nrb.org.np while NRB's portal is down.

Want a second pair of eyes on your loan statement? Email parjanya57@gmail.com with your premium, current rate and remaining instalments.

This post is part of the Nepal Money Basics guide, in the Big-ticket decisions section.