In 2025, home loan interest rates have seen a downward trend, thanks to multiple repo rate cuts by the Reserve Bank of India (RBI). With the repo rate reduced by a full percentage point from 6.5% to 5.5%, borrowers stand to benefit—but how much depends largely on the type of interest rate regime their loan follows. To navigate this landscape, it’s essential to understand the differences between the Marginal Cost of Funds Based Lending Rate (MCLR) and the Repo Linked Lending Rate (RLLR).
The Evolution of Home Loan Interest Rate Benchmarks
Interest rates for home loans in India are typically tied to benchmarks that have evolved over time:
- Base Rate (Pre-July 2010 to March 2016): Early floating rate loans were linked to this internal benchmark.
- MCLR (April 2016 to September 2019): This became the predominant benchmark, based on banks’ internal funding costs.
- RLLR/EBLR (Post October 2019): The RBI mandated all new floating-rate loans to link to an external benchmark, usually the repo rate, giving rise to the Repo Linked Lending Rate (RLLR) or External Benchmark Lending Rate (EBLR).
As of late 2024, around 61% of floating loans are tied to the repo rate, 36% to MCLR, and the remainder to other benchmarks.
Key Differences: MCLR vs. Repo Linked Lending Rate (RLLR)
| Parameter | MCLR | RLLR (Repo Linked Lending Rate) |
|---|---|---|
| Benchmark Source | Internal bank-determined | External, typically the RBI’s repo rate |
| Rate Reset Frequency | Varies (6–12 months) | Quarterly |
| Transparency | Moderate | High |
| Transmission Speed | Slow | Fast |
| Rate Adjustment | Gradual, based on bank policy | Immediate, mirrors repo rate changes |
MCLR is calculated based on banks’ internal cost of funds, operating expenses, and margins, with banks determining spreads according to risk profiles. Contrastingly, RLLR directly tracks the RBI repo rate, automatically adjusting loan rates every three months without additional charges, providing borrowers quicker benefit realization from repo rate cuts.
Savings Opportunity by Switching to RLLR
Consider this example: A borrower with a ₹25 lakh outstanding loan under the MCLR system pays 9% interest annually, with 15 years left to repay. Switching to RLLR reduces their rate to 8.5%, resulting immediately in monthly EMI savings of approximately ₹739 and annual savings nearing ₹8,868. Over the loan’s tenure, this translates to interest savings exceeding ₹1.3 lakh.
How to Switch Your Home Loan Regime
Switching from MCLR to RLLR involves informing your lender and paying a conversion fee, which varies by bank—typically around 0.25% of the outstanding principal or fixed amounts (e.g., ₹5,000). The process usually takes between one to two weeks, governed by the lender’s internal protocols.
Transmission of Repo Rate Cuts Across Lenders
Not all banks pass repo rate cuts evenly to borrowers. Research indicates that public sector banks have transmitted an average of 70 basis points, housing finance companies 40 bps, private banks 15 bps, while NBFCs and small finance banks often show no transmission as of mid-2025.
What You Should Check Before Switching
- Confirm if your lender offers an external benchmark-linked loan tied to the repo rate.
- Evaluate how much of the repo rate cut your lender has passed on to existing borrowers.
- Perform a thorough cost-benefit analysis including conversion fees to estimate real savings.
- If your bank does not offer RLLR-linked loans, consider transferring to a lender that does, provided the savings outweigh the transfer costs.
Understanding your home loan’s interest rate structure is fundamental to optimizing your financial commitments. With repo-linked loans offering faster and clearer benefits from monetary policy changes, evaluating and possibly switching to RLLR can yield significant savings. Partnering with a qualified financial advisor can provide personalized guidance to navigate these decisions effectively, ensuring you capitalize fully on prevailing opportunities.
Empowered with this knowledge, borrowers can navigate their home loan journeys with confidence, securing better terms and a stronger financial future.
