Repo-linked rate (EBLR) vs MCLR home loan: which do you have and should you switch?
How repo-linked and MCLR home loan rates differ, how to find your benchmark in your loan papers, and a worked example of switching an old MCLR loan.
A repo-linked (external benchmark) home loan moves with the RBI repo rate and must be reset at least every three months, while an MCLR loan follows the bank's internal marginal cost of funds based lending rate and usually resets only every six or twelve months. Since 1 October 2019, new floating-rate home loans from banks have had to use an external benchmark, but many borrowers who took loans earlier are still on MCLR or the even older base rate. If your loan is on an internal benchmark and your rate is clearly above what the same bank charges new repo-linked borrowers with your profile, switching within the bank for a conversion fee is often the cheapest saving available.
This guide is part of the overview of home loan interest rates in India. Figures are illustrative.
The four benchmarks you may find in Indian home loans
| Benchmark | Period used | Set by | How quickly it reflects RBI policy |
|---|---|---|---|
| BPLR (benchmark prime lending rate) | Before July 2010 | Each bank | Very slowly |
| Base rate | July 2010 to March 2016 | Each bank | Slowly |
| MCLR | April 2016 to September 2019 for new loans | Each bank, from its cost of funds | With a lag; reset every 6 or 12 months for most home loans |
| External benchmark (EBLR / RLLR) | New floating retail loans from October 2019 | Linked to repo rate or another external rate | At the next reset, at least every three months |
Housing finance companies are not bound by the bank external benchmark requirement in the same way. Most set their own reference rate, often called a prime lending rate or retail prime lending rate, and add a spread. If you borrowed from an HFC, check how that reference rate has moved over the past few years compared with the repo rate.
How to find out which benchmark your loan uses
- Look at the sanction letter or loan agreement. It names the benchmark, such as "repo rate + 2.75%" or "1-year MCLR + 0.40%".
- Check your annual interest certificate or loan statement. Many lenders print the current rate and benchmark.
- Log in to net banking. The loan details page usually shows the rate type.
- Ask in writing. Email the lender asking for the benchmark, the spread and the next reset date. Keep the reply.
If the documents say "floating" with no benchmark, or name the base rate or BPLR, you are on an old internal benchmark.
Why MCLR loans often cost more
When the repo rate falls, a repo-linked loan reprices at the next quarterly reset. An MCLR loan waits for two things: the bank lowering its MCLR, which depends on its cost of funds, and your own reset date, which may be up to a year away. When rates rise, MCLR loans also lag, which can feel helpful for a while, but over a full cycle borrowers left on old benchmarks have often ended up paying a higher spread than new customers of the same bank.
Worked example: converting an MCLR loan to the repo-linked rate
Illustrative situation:
- Outstanding principal: ₹30 lakh
- Remaining tenure: 14 years (168 months)
- Current rate on MCLR: 9.60%
- Same bank's repo-linked rate for your profile: 8.65%
- Conversion fee quoted: ₹10,000 including GST
Calculation, using the standard EMI formula on the same balance and remaining months:
- EMI at 9.60%: about ₹32,529
- EMI at 8.65%: about ₹30,857
- Monthly saving: ₹32,529 − ₹30,857 = ₹1,672
- Break-even: ₹10,000 ÷ ₹1,672 = 5.98, so about 6 months
- Net saving over 14 years: ₹1,672 × 168 − ₹10,000 = about ₹2,70,840
If the bank keeps the EMI unchanged and shortens the tenure instead, the saving shows up as fewer EMIs at the end. You can reproduce this by entering both rates in the balance transfer calculator, using the conversion fee as the switching cost.
Conversion with the same lender vs balance transfer
| Route | Typical costs | Paperwork | When it makes sense |
|---|---|---|---|
| Convert to the lender's current benchmark | Conversion fee, sometimes a percentage of the balance with a cap | Short application, sometimes a fresh agreement or supplementary agreement | First step for almost every old MCLR or base rate loan |
| Ask for a lower spread on the current benchmark | Sometimes a fee | Request letter | If you are already repo-linked but your spread is high |
| Balance transfer to another lender | Processing fee with GST, legal and valuation fees, stamp duty on the new mortgage | Full new loan application, original documents moved | If your lender refuses to reprice or the rate gap is large |
The balance transfer worked example shows how switching costs change the result.
Points to check before you sign the conversion
- The new spread in writing. "Repo + X%" where X is the full spread, with any credit risk premium shown.
- The reset frequency and the date of the first reset.
- Whether EMI or tenure will change at future resets. RBI's 2023 instructions on resetting floating rates require the lender to explain this and give you choices; see what happens at a rate reset.
- Whether the conversion fee includes GST.
- Whether any insurance or other product is being sold alongside. Conversion should not require buying anything.
Frequently asked questions
Can my bank refuse to convert my MCLR loan to the repo-linked rate?
Banks have generally offered conversion on mutually agreed terms, often for a fee. If the bank refuses or demands unreasonable conditions, ask for the reason in writing. A balance transfer to another lender is the alternative.
Will converting reset my loan tenure?
It should not if you ask for the same remaining tenure. Check the new repayment schedule; some lenders keep the EMI and shorten the tenure, which is usually good for you.
Is the repo-linked rate always lower than MCLR?
Not at every moment. During a period of rising rates, a repo-linked rate can rise above an MCLR rate that has not yet reset. Compare the current rates and your spread, not the label.
My HFC loan has a "prime lending rate". Is that like MCLR?
It is an internal benchmark set by the HFC. Ask how it is reviewed, and compare your effective rate with what the HFC charges new borrowers. You can ask for a lower spread or consider a transfer.
Sources
- Reserve Bank of India — instructions on external benchmark linked lending and MCLR
- Financial Benchmarks India — Treasury bill benchmarks that banks may use
- National Housing Bank — housing finance company supervision
- RBI Kehta Hai — consumer awareness on loan rights
