The External Benchmark Lending Rate (EBLR) is a financial indicator that has changed how home loans are arranged in India. By connecting loan interest rates to external benchmarks such as the Reserve Bank of India’s (RBI) repo rate, EBLR ensures better transparency and faster rate changes for borrowers. Understanding the EBLR might help you save money on your home loan.
What is the EBLR rate?
The RBI introduced the EBLR in October 2019, replacing the Marginal Cost of Funds-Based Lending Rate (MCLR) for retail and home loans. Compared to the MCLR, the EBLR is directly linked to an external benchmark, making it more dynamic and transparent. Banks frequently use benchmarks such as the RBI’s repo rate, treasury bill yield, or any other benchmark provided by Financial Benchmarks India Private Limited.
This linkage ensures that when the external benchmark changes, your loan interest rate adjusts correspondingly. This can result in significant savings when benchmark rates fall since your equivalent monthly instalment (EMI) may decrease.
How EBLR Can Reduce Your Home Loan EMI
Borrowers benefit most from the EBLR mechanism when interest rates are dropping. This is how it works.
1. Faster Rate Transmission: Banks modify the interest rates on EBLR-linked loans very quickly after changes in the external benchmark. This means that if the RBI decreases the repo rate, your interest rate, and thus your EMI, will fall swiftly.
2. Interest Rate Transparency: By directly linking to an external benchmark, borrowers gain a clear understanding of how their loan interest rates are calculated, decreasing the uncertainty of arbitrary rate adjustments.
3. Long-Term Loan Savings: For long-term loans, such as home loans, even a minor reduction in interest rate can result in large savings over time. You can use a home loan EMI calculator to calculate the difference in monthly payments between different interest rates.
Maximising the Benefits of EBLR for Home Loans
- Monitor Benchmark Movements: Monitor external benchmarks like the repo rate. Falling interest rates could mean lower EMIs.
- Review Loan Terms: If your existing house loan is not tied to the EBLR, you should consider switching. Borrowers can often switch from MCLR-based or fixed-rate loans to EBLR for a small charge.
- Consider a Home Loan Top-Up: If you already have a home loan but require additional funds, you can consider a home loan top-up. Top-up loans with EBLR-linked terms may benefit from lower interest rates in a favourable market.
Use a home loan EMI calculator.
A house loan EMI calculator is a useful tool that allows borrowers to estimate their EMIs under various circumstances. By entering the loan amount, tenure, and interest rate, you may calculate your monthly payment and investigate the effect of EBLR-linked rate changes on your EMI.
The EBLR rate provides a clear and borrower-friendly approach to house loans, allowing for reduced EMIs as interest rates decline. Always keep track of rate fluctuations and use resources like a home loan EMI calculator to maximise savings. EBLR-linked home loan top-ups offer savings at low interest rates for refinancing or additional cash.