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Home Loan EMI: Big news on home loans! 6 big banks, including SBI, HDFC, PNB, have reduced interest rates. Now the EMI of old customers will be less. See the full list and know how much benefit you will get.

Home Loan EMI: If you too had taken a home loan a few years ago and were troubled by the rising EMI, then there is a great good news for you! Almost all the big banks of the country have given a great gift to their millions of old customers. Big banks like SBI, HDFC Bank, Punjab National Bank (PNB), Bank of Baroda (BoB) and Indian Overseas Bank (IOB) have cut their lending rates, which directly means that now your home loan monthly installment (EMI) is going to be reduced.

This news has come at a time when RBI has kept the repo rate stable, but banks are now passing on the benefits of previous cuts to the customers. So let's understand this whole matter in simple language, what is this cut, who will get its benefit, and how much impact it will have on your pocket.

Who will get the benefit?

This is the most important part of this news, about which there is most confusion. This cut in interest rates is not for everyone. Its benefit will be mainly given to those people whose home loan is linked to 'MCLR' (Marginal Cost of Funds Based Lending Rate). Before 2019, banks used to give loans on the basis of MCLR. You can consider MCLR as the 'house expenses' of the bank. The bank used to decide its interest rate based on how much it is spending to raise money. This used to be an internal matter of the bank.

Whereas after 2019, RBI made a rule that all new loans will be linked to EBLR (External Benchmark Lending Rate), which is directly linked to RBI's repo rate. You can consider it as RBI's 'government rate'. When RBI reduces the repo rate, loans with EBLR immediately become cheaper.

So, the reduction that banks have made now is in their 'house expenses' i.e. MCLR. That is why its benefit will directly be available only to old customers, whose loan is running on MCLR.

Which bank gave how much relief?

How much will it affect your EMI?

This reduction may seem small like 0.05% or 0.10%, but home loan is a long-term deal, so its impact is quite big. Suppose, you had taken a home loan of ₹ 30 lakh for 20 years, on which the interest rate was 9.00%. In such a situation, your old EMI: ₹ 26,992. Now, the bank has reduced the MCLR by 0.05%, and your new interest rate becomes 8.95%.

Your new EMI: ₹26,894

How much is the benefit?

Monthly savings: ₹98

Savings in one year: ₹1,176

Total savings in 20 years: ₹23,520

If the reduction was 0.10%, the savings would have been almost double, i.e. more than ₹47,000!

What should you do now?

If you too have a home loan, do not sit quietly and wait for the EMI to be deducted. Take these 3 steps:

1. Check your loan agreement

First of all, take out your home loan papers and check whether your loan is linked to MCLR or EBLR.

2. Find your 'reset date'

The interest rates of loans with MCLR do not change every day. Every loan has a 'reset date', which is usually 6 months or 1 year. The reduction in your EMI will be visible only after that reset date. Contact the bank to know your reset date.

3. Should I switch to EBLR?

If you want, you can switch your MCLR loan to EBLR.

* Advantage: EBLR is directly linked to the repo rate, so your EMI will reduce immediately as soon as RBI reduces the rate.

* Disadvantage: The opposite is also equally true. If RBI increases the repo rate in the future, your EMI will also increase immediately. Changes in MCLR happen a little slowly.

Conclusion

This reduction in MCLR by the country's big banks is a big relief for lakhs of old home loan customers who were waiting for a long time for their EMI to be reduced. This decision will not only lighten the burden on their pockets, but will also create a positive atmosphere in the market. However, this is also a lesson for all of us that we should have complete information about our loans. You should know whether your loan is on MCLR or EBLR, and when is your reset date. Only by becoming an aware customer can you take full and proper advantage of such changes.

Frequently Asked Questions (FAQs)

Question 1: Who will benefit from the reduction in MCLR?

Answer: Its direct benefit will be given to those old home loan customers whose loan was taken before October 2019 and is linked to MCLR (Marginal Cost of Funds Based Lending Rate).

Question 2: Will my EMI reduce immediately?

Answer: No, your EMI will not reduce immediately. Your loan has a 'reset date' (which can be 6 months or 1 year). Your new and lower interest rate will be applicable only when that date arrives.

Question 3: Why do customers with EBLR not benefit from this reduction?

Answer: Because loans with EBLR are already linked to RBI's repo rate. When RBI changes the repo rate, their EMI is directly affected. This MCLR reduction is an internal decision of the banks.

Question 4: Should I convert my MCLR loan to EBLR?

Answer: It depends on your risk-taking ability. EBLR is more transparent and gives the benefit of RBI rate cuts quickly, but it also increases at the same pace when RBI increases the rate. Before taking any decision, understand the advantages and disadvantages of both from your bank.

Question 5: How much have banks reduced MCLR?

Answer: Different banks have reduced the rate by 0.05% to 0.35%. You can check the exact rates of your bank in the table above.

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