Want to repay home loan faster? You can reduce EMIs, interest rate burden  |  Photo Credit: Thinkstock
The Monetary Policy Committee (MPC) of the Reserve Bank of India in its first bi-monthly Monetary Policy Review of 2021-22 kept the repo rate unchanged at 4%.
The decision comes amid the second wave of Covid-19 pandemic which threatens to derail the economy and therefore easy credit is imperative.
This has ensured that home loan rates offered by commercial banks at multi-year lows. Most banks are offering home loans starting at 7%.
MCLR or RLLR-linked loan
The Reserve Bank of India (RBI) introduce the Marginal Cost of Lending Rate (MCLR) on April 1, 2016. MCLR loans are based on banks’ own cost of funds and were introduced to make up for limitations of Base Rate which was the lending benchmark at the time for all loans. Soon RBI introduced the External Benchmark Lending Rate loans to address the delay by banks in passing the benefits of repo rate cut under the MCLR regime. From October 1, 2019, all commercial banks linked their loans to RBI’s policy repo rate or any other benchmark interest rate published by the Financial Benchmark India Private Ltd (FBIL).
Depending on whether your loan is MCLR or Repo Linked Lending Rate (RLLR) you can decide how to keep the interest rate burden minimum and keep EMIs low.
Those who availed loans before April 2019 may continue with their MCLR loans instead of switching to RLLR. Switching from MCLR to RLLR loans may reduce the cost for borrowers. However, for those who have availed of loans linked to MCLR, a fall in the same will reduce EMIs when your reset period comes up.
Even a fall of 1% in interest rates can cause your EMIs to come down along with the total interest burden. It is recommended to go for the lowest interest rates offered in case of new loans.