It’s time to buy your dream home. Why not get the cheapest home loan? There are many banks in India offering different home loan rates. Sadly, home loan rates continue to remain high, even after the RBI has cut the repo rate by 110 basis points this year.
The RBI has asked banks to transmit the repo rate cut to home loan customers. The repo rate is 5.4%. Even the Prime Minister Narendra Modi has asked banks to pass on rate cut benefits. State Bank of India or SBI, India’s largest lender had introduced repo-linked home loans for new customers on July 1st 2019. Other banks like Oriental Bank of Commerce, Bank of Baroda, Syndicate Bank, Bank of India, Union Bank, Bank of Baroda and Allahabad Bank are offering repo-rate linked home loans.
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SBI was the first bank to offer a home loan where interest rate was linked to RBI repo rate. What is repo-linked lending rate? In repo-linked lending rate or RLLR, lending rates are benchmarked to the RBI repo rate. Your home loan rate changes each time the RBI changes the repo rate. This happens on the 1st of the following month after which the RBI changes the repo rate. The RBI has cut the repo rate by 35 bps in August. Banks which have repo-linked lending rate would cut home loan rates in September.
SBI has offered the repo-linked lending rate or RLLR. The RLLR is 225 bps above the repo rate which currently stands at 5.4%. RBI cut the repo rate by 35 bps in August and the lower rate will reflect in your home loan on September 1st 2019.
SBI charges 8.05% for repo rate linked home loan up to Rs 75 Lakhs. This is for all existing and new customers from 1st September 2019.
This is the repo rate of 5.4% + 2.25% + 40 bps = 8.05%. If you have a good credit score, you are charged 40 bps instead of 55 bps. A customer with a good credit score gets home loan at 8.05% for a loan amount up to Rs 75 Lakhs.
See Also: Repo Rate Cut: Home Loan Rates to Fall?
If RBI cuts repo rate, customers with repo rate linked lending rate tend to enjoy lower home loan rates vs those under the MCLR regime.
In MCLR, lending rates are reset only at intervals. If your home loan is benchmarked against the one-year MCLR, lending rates are reset each year. So, even if the bank cuts MCLR, you get the benefit only when the loans are reset.
Let’s say your SBI floating rate home loan was linked to one-year MCLR. There is a one-year reset clause. So, if the bank cut MCLR in July, the home loan rate would not change till June next year.
Take Away: In case of home loan linked to MCLR, there is a lag in transmission of lower home loan rates. You don’t get lower home loan rates immediately, because of the reset clause. In repo-linked lending rate, transmission of lower home loan rates happens from the 1st of the following month after which RBI cuts repo rate. So, transmission is real quick. If RBI raises repo rates, then repo-linked home loan rates go up. (Rate cycles are both up and down). Go for home loan linked to MCLR if you want predictability in home loan EMIs.
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