After the Reserve Bank of India (RBI) kept the repo rate unchanged in its June 2026 Monetary Policy Committee (MPC) meeting, you, as a home loan borrower, may be wondering what it means for your monthly EMIs.
While, for home loan borrowers, it brings real relief, sparing existing homeowners from EMI hikes and giving new buyers a secure window to lock in mortgage rates, the impact on your home loan depends on whether it is linked to the External Benchmark Lending Rate (EBLR) or the Marginal Cost of Funds-based Lending Rate (MCLR).
Nowadays, the majority of floating-rate home loans are linked to either the External Benchmark Lending Rate (EBLR) or the Marginal Cost of Funds-Based Lending Rate (MCLR), and they react differently to adjustments in the policy rates of the RBI.
What are MCLR and EBLR?
Introduced in April 2016, MCLR is an internal benchmark determined by financial institutions based on factors such as their cost of funds, operating expenses, and cash reserve needs.
A home loan linked to MCLR carries an interest rate such as 1-year MCLR + spread, here spread is a fixed markup added to your MCLR.
Home loan rates are not immediately affected by changes in RBI repo rates since banks determine MCLR rates internally. Banks are required to review and update their Marginal Cost of Funds-based Lending Rate (MCLR) every month, as mandated by the RBI.
However, your loan’s reset period—usually every six months or a year—determines the date on which your particular EMI changes.
EBLR was introduced in October 2019, and under this system, home loan rates are linked to an external benchmark such as the repo rate, Government Treasury Bill yields, as approved by the RBI.
This implies that EBLR-linked loan rates fluctuate more quickly than MCLR-linked loan rates whenever the RBI modifies the repo rate. According to the bank’s policy, your interest rate will normally be “reset” every three months under this regime.
Lending rates under MCLR (Marginal Cost of Funds-based Lending Rate) are linked to a bank’s internal cost of funds. For home loans, the impact of changes in MCLR is passed on to borrowers only on the predetermined reset date (biannually or annually). Most floating-rate home loans availed prior to October 2019 were linked to the MCLR regime.
Floating-rate home loan borrowers who took the loan since October 2019 have their loans mostly linked to EBLR (External Benchmark Lending Rate) or RLLR (Repo Linked Lending Rate) after the RBI’s mandate to link all new floating-rate retail loans to an external benchmark from October 1, 2019.
Why do MCLR borrowers often see a delayed benefit when the RBI cuts rates?
RBI regulations require banks to reset rates at least every three months for loans linked to EBLR. This results in a faster transmission of any change in the RBI repo rate. Many existing borrowers of MCLR-linked home loans have voluntarily switched to EBLR-linked home loans to benefit from faster transmission of monetary policy changes.
Are EBLR-linked loans always better during a rate-cut cycle?
The implementation of changes to MCLR-based loans is relatively slow as the transmission process involves two stages – the bank revising MCLR and the borrower’s loan reaching its reset date.
When the RBI modifies its repo rate, banks may subsequently revise their MCLR depending on the impact of the policy change on their cost of funds and deposit rates, and then provide their benefits to the existing borrower only on the next scheduled reset date.
“With EBLR, reset frequencies are shorter, and policy changes reflect more quickly and more transparently. There can be temporary periods where MCLR-linked loans are comparable or even cheaper than EBLR-linked loans, especially during the rising interest rate cycle. This is because EBLR-linked loans transmit repo rate hikes relatively quickly, whereas MCLR-linked borrowers may continue to benefit from their existing rates until the next reset date,” said Santosh Agarwal, CEO, Paisabazaar.
However, before switching to EBLR-linked ones, existing MCLR borrowers should evaluate their current standing based on their current effective interest rate versus the lender’s prevailing EBLR-linked rate and any conversion fee or administrative charges involved in the switch.
Should existing MCLR borrowers consider switching to EBLR-linked loans now?
Existing borrowers whose effective MCLR-linked rates are materially higher can benefit from migration to the bank’s lower EBLR-linked interest rate.
However, the decision should be made only after considering the actual difference in the interest rate and expected savings after accounting for the conversion costs instead of relying solely on the benchmark type, says Santosh Agarwal.
Given the current interest rate environment, which option appears more advantageous for borrowers?
Additionally, comparing the spread over the benchmark and the remaining loan tenure can help conduct a better analysis and make an informed decision. In case an MCLR borrower is already availing competitive rates, the benefits of switching to EBLR-linked loans may be limited.
Disclaimer: The information provided in this article is for educational and informational purposes only and should not be construed as financial advice. Home loan interest rates, benchmark rates (MCLR, EBLR, RLLR), bank policies, and RBI regulations are subject to change. Borrowers should verify the latest rates, reset terms, conversion charges, and eligibility criteria with their respective lenders before making any decision regarding loan switching or refinancing. Readers are advised to consult a qualified financial advisor or loan expert for advice tailored to their individual financial circumstances.
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