Home loans have become cheaper as the State Bank of India (SBI), the country’s largest lender, has announced a reduction in its External Benchmark Based Rate (EBR) by 25 bps to 7.80 per cent per annum from 8.05 per cent per annum. The new interest rate will be effective from January 1, 2020. The interest rate of borrowers who have loans linked to the External Benchmark Based Rate would come down by 25 bps. In early December, SBI had cut the 1-year MCLR by 10 basis points, which currently stands at 7.9 per cent per annum. The new home loan borrowers will get loans at an interest rate starting from 7.90 per cent per annum which previously was from 8.15 per cent per annum. More banks are expected to lower their home loan interest rate.
For loans taken on or after October 1, 2019, the interest rate is linked to an External Benchmark. Such loans are called repo linked lending rate (RLLR) as well. In the case of most banks including SBI, it is based on RBI repo rate and is called the External Benchmark Based Rate (EBR). The effective home loan interest rate will, however, depend on the borrower’s profession, gender, loan amount, down payment etc.
For loans taken on or after April 1, 2016, the interest rate is linked to the bank’s MCLR, which is an internal benchmark. The effective rate of interest will depend on the borrower’s profession, gender, loan amount, down payment as well as the mark-up on the loan. Those who wish to switch MCLR loans to EBR loan may do so by contacting their bank.
Watch: What is Repo Linked Lending Rate, Home Loan? RLLR meaning, comparison vs MCLR
How it matters
After the recent rate cut by SBI, the home loans have become cheaper than before and the new borrowers stand to gain. However, existing borrowers of MCLR loan need to make a cautious decision before switching. The transmission of rate in the case of EBR is expected to be faster than MCLR loans. In the latter, the rate of interest is at least fixed for 12 months as it gets revised on the reset-date.
As the rates have started to come down showing relatively better transmission, for those MCLR home loan borrowers whose reset-date is over the next few months, the EMI is expected to fall. From January, the EMI for both MCLR and EBR loans is expected to be lower than seen over the last few years. One may, therefore, stick to MCLR loans and see the movement of the interest rate over the next few months before switching to RLLR.
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Source: Financial Express