Interest rates are falling, time to switch your home loan regime: Save above Rs 8 lakh by switching to EBLR; Know how

Time of India

02-05-2025

What is EBLR?
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How much savings in monthly home loan EMI can you expect after switching to EBLR rate?
Home loan's outstanding balance: Rs 30 lakh
Remaining tenure of the home loan: 15 years
EBLR EMI at 8.65%: Rs 29,807
Table showing the calculation of home loan EMI savings on switching to EBLR
Interest Rate Regime
MCLR
BPLR
Base rate
Existing interest rate
9%
11.15%
10.40%
Current EMI
Rs 30,428
Rs 34,381
Rs 32,976
Monthly savings by shifting to EBLR
Rs 621
Rs 4,574
Rs 3,170
Annual savings by shifting to EBLR
Rs 7,457
Rs 38,036
Rs 32,976
Total Savings during repayment
Rs 1,11,859
Rs 5,70,540
Rs 8,23,402
What are the charges which bank levy for such a shift in interest rate regime and generally how long does it take for such a request to process?
The interest rate has started falling as most of the lenders started reducing their interest rate after RBI cut the repo rate by 0.5% within a span of two months. It will deliver a huge saving for home loan borrowers as their home loan EMI will come down. If home loan borrowers decide to pay the same EMI despite a rate cut, their home loan will be repaid much faster and they will end up saving a good amount of interest. However, not all home loan borrowers will benefit equally. The advantage that they will get from these cuts will depend upon the interest rate regime to which they belong.One of the biggest questions is which interest rate regime can give lower home loan EMIs. This is because there are four interest rate regimes, depending upon when you took the home loan. In the case of home loan borrowers who took home loans before 2010, they had the option to take it on BPLR rate, those who took home loan after July 1, 2010 and till 31 March 2016, had to take the loan on base rate. Similarly those who took home loan on or after April 1, 2016 till September 30, 2019 had to take it on MCLR. From October 1, 2019, MCLR was replaced by EBLR. So a question can come to mind about which interest rate regime (BBLR, base rate, MCLR or EBLR) can make the case for a lower home loan's interest cost and thus lower home loan EMI.Read below to find out how much money you can save by switching interest rate to EBLR.EBLR (External Benchmark Lending Rate) is a framework used by banks in India to set interest rates on home loans, where the rates are directly linked to an external benchmark, such as the RBI repo rate. This means that when the RBI adjusts its repo rate, EBLR-linked loan rates can also change.Homeowners who took out a home loan before EBLR, have to pay a higher home loan EMI. This is because the EBLR rate is considered one of the most competitive rate amongst all regimes and it now offers one of the lowest interest rates after the Reserve Bank of India (RBI) cut the repo rates twice by 0.25% in its last two monetary policy meetings.Abhishek Kumar, SEBI RIA, founder of SahajMoney, says: 'EBLR is directly linked to the RBI's repo rate (6.00% (repo rate) + 2.65% spread), making it more transparent and reflective of interest rate scenarios.'While EBLR was launched the banks offered an option to all old borrowers to switch to EBLR however not all borrowers exercised that option.According to Adhil Shetty - CEO - Bankbazaar.com, 'The older benchmark rates are stickier in comparison to BPLR. Around 40% of all floating rate bank loans are still on MCLR and BPLR where the rates may be much higher compared to repo-linked loans. So it's advisable to speak to your bank and convert your loan to a repo-linked one.'If you are among them then chances are that you would still be paying a higher interest rate on your home loan. It is the time when you check your home loan interest rate and take action to save interest amount that you are paying just because of being idle.As home loan interest rates are falling, calculations show that it is beneficial for borrowers to shift to EBLR rate if their home loan is under MCLR or base rate or BPLR rates.As per the calculations, if the EMI on EBLR rate (8.65%) is Rs 29,807 then you can save up to 38,036 in a year in comparison with BPLR. In comparison with MCLR you can save up to Rs 7,457 in a year.Source: SahajMoneyAssumptions:1. BPLR rate is after 4% discount by bank2. In EBLR there are 2 additional charges CRP (Credit Risk Premium) and BSP (Business Strategic Premium) that change with credit profile and with product. We have considered only 8.65% without CRP and BSP.3. EBLR stays constant at 8.65% and other interest rates does not change.You can change your home loan interest rate regime any day you wish as your bank will process your request if you apply to switch your home loan to EBLR.Shetty says if you're converting your loan with the same bank, you are usually charged a processing fee. The turnaround time for this conversion is generally a few days and usually there is no paperwork involved since the property's documents are already with the bank.Kumar agrees with Shetty and adds: 'Some banks may charge processing fees ranging from 0.5% to 1% of the outstanding loan amount for regime conversion.'However when transferring home loan to another bank and converting it into EBLR can mean incurring a cost of 0.5% to 1% of the loan amount.Shetty says transferring your loan to a new bank makes sense where there's a substantial discount in interest rates being offered along with other benefits like easier pre-payment terms.'The cost of a transfer is usually 0.5-1% of the loan. The costs include processing fee, legal fees, MOD charges, and pre-EMI interest on the new loan, and pre-closure costs (such as simple interest or pre-closure fees) on the old loan. You will easily recover the costs in a year if the rate difference is substantial. The Turnaround time is typically a fortnight, but may get lengthier if the bank insists on additional scrutiny,' says Shetty.