Home Loan Consumers Can Save Big—Here’s How

The Reserve Bank of India has again cut the repo rate by 0.50% to 5.5%. This is the third cut in a few months and cumulatively amounts to 1% cut. For home loan takers, and more so for floating-rate loan takers, this is a golden chance to reduce the monthly EMIs and save lakhs during the tenure of the loan.

Not all will gain equally, though. It would all depend on the interest rate environment of the loan.

How Repo Rate Cuts Help Borrowers

When RBI cuts repo rate, banks are required to cut loan interest rates. But this advantage comes to borrowers disproportionately depending upon whether their loan is having a connection with EBLR (External Benchmark Linked Rate) or MCLR (Marginal Cost of Lending Rate).

EBLR vs MCLR: Know the Difference

EBLR is directly related to the RBI repo rate. The moment that the repo rate is reduced, the bank must immediately pass on that very same reduction of the interest rate on loans—most likely within days. This translates into faster and clearer EMI reduction.

MCLR, however, provides the banks with greater control. They can retain retaining the benefit or cutting the rate by even a fraction, often for internal cost systems. In this way, the borrower can lose the benefit of repo cuts to some extent.

Switch and Save Lakhs

Transfering a home loan from MCLR to EBLR helps save considerably on interest outflow over the long term. Even after shelling out a transfer or processing charge usually ₹25,000 to ₹35,000, the overall savings are as much as ₹8 lakh or even more during the loan period. Lower EMIs also make repaying finances or prepaying the loan easier.

What Borrowers Should Do

Call up the bank to request a switchover to EBLR from MCLR.

Understand all the fees for the switch.

Make a balance transfer to another lender that provides more beneficial terms under EBLR if the existing bank is not cooperating.

Don’t Delay the Decision

The earlier the transition, the greater savings especially when years of the loan remain outstanding. Upcoming house buyers who plan to take a mortgage on their new homes should simply opt for EBLR so that they will automatically qualify for any future rate cuts.

The decision about the right rate arrangement is not merely a cost choice, it’s a smart move towards long-term savings.