MCLR vs. RLLR: Reviewing Home Loan Rates and Impact on EMIs

• RLLR is linked to the RBI repo rate, while MCLR is based on a bank’s internal cost structure and methodology.
• RLLR adjusts EMIs quarterly, offering quicker savings or hikes; MCLR updates are slower, offering predictable and stable payments.
• Choose RLLR for transparency and fast transmission; prefer MCLR if you value rate stability and longer-term EMI consistency.

The dream of owning a home is a significant milestone for many. Home loans provide a practical and affordable route to achieve it. In India, lenders usually offer loans based on either the repo-linked lending rate (RLLR) or the marginal cost of funds-based lending rate (MCLR). Understanding how these two lending rate systems work is essential for making an informed borrowing decision.In this article, we discuss what the MCLR rate is, what the RLLR is, how they are calculated, and how they impact your home loan EMIs. We cover the differences between MCLR and RLLR in detail to help you select the right home loan interest rate that aligns with your goals.

The marginal cost of funds-based lending rate (MCLR) is the minimum interest rate that a bank can offer on loans. It is internally determined by each bank and is influenced by several factors, including the marginal cost of funds, operating expenses, and tenor premium. MCLR is adjusted periodically, generally every 6 to 12 months, based on internal cost structures.If you opt for an MCLR-based home loan, your EMI will remain fixed during the reset period. Since the MCLR considers repo rate movements indirectly, changes in your interest rate will not be immediate. This can be helpful if you prefer a more stable repayment schedule over time.

To understand what MCLR is in loan agreements, you must look at how it is computed. Lenders use a structured approach: MCLR = Marginal Cost of Funds + Operating Costs + Tenor Premium

• Marginal Cost of Funds : Includes interest rates offered on deposits and borrowings.
• Operating Costs : Covers administrative expenses.
• Tenor Premium : Compensation for the risk of lending for a longer period.

This calculation results in different MCLR rates for different loan tenures.

Next, you must be wondering what RLLR is . RLLR stands for repo-linked lending rate. It is directly linked to the Reserve Bank of India’s (RBI) repo rate. RLLR means that your loan interest rate also changes whenever the repo rate changes. This external linkage makes RLLR more dynamic than MCLR.In addition to the repo rate, the RLLR considers factors such as your loan-to-value ratio and risk rating. Since it reacts to repo rate changes almost instantly, you can benefit from lower EMIs (equated monthly instalments) when the RBI cuts the repo rate. If you appreciate transparency and faster transmission of interest rate benefits, RLLR might be more suitable for you.

Now that you know what RLLR is , let’s proceed to its calculation. The formula to determine RLLR is quite straightforward: RLLR = Repo Rate + Spread

• Repo Rate : The current rate set by the RBI.
• Spread : Added by the lender to cover operational margins and risks.

This structure ensures that your home loan interest remains transparent and aligned with national monetary policies.

The type of lending rate you choose directly influences how your EMIs are calculated and adjusted over time.

Impact of MCLR on EMIs

• Your EMI remains constant during the reset period, which typically ranges from 6 to 12 months.
• Even if the repo rate changes, your EMI will only be revised after the reset date.
• This delayed transmission offers predictability and gives you time to plan.
• However, the benefit is not immediate in a falling interest rate scenario, which may delay potential savings.

Impact of RLLR on EMIs

• EMIs are revised every three months, in sync with repo rate changes by the RBI.
• When repo rates fall, your EMI can decrease in the next quarter, helping you save on interest.
• Conversely, any hike in repo rates will increase your EMI within a short span.
• This dynamic nature can benefit short-term gains but may affect long-term financial planning if rates rise frequently.

Understanding what RLLR and MCLR are helps you decide which rate is better for your home loan. Choosing between MCLR and RLLR depends on your financial preferences and risk appetite. Transparency :

• RLLR is based on the publicly declared repo rate, ensuring a clear understanding.
• MCLR is internally calculated, making it less transparent.

Stability :

• MCLR offers fixed EMIs for longer periods, helping with planning.
• RLLR changes every 3 months, which may make budgeting unpredictable.

Potential Savings :

• RLLR reflects repo rate cuts immediately, which could lower your EMIs.
• MCLR may not pass on benefits promptly.

For those prioritising transparency and short-term savings, RLLR is ideal. However, if rate stability is important to you, MCLR may be the safer option.

By now, you should clearly understand what RLLR and MCLR are , along with their influence on your home loan interest rate and EMIs. Both options offer unique benefits and risks. If you are still uncertain, consult your lender to understand how each rate affects your specific home loan.If you are looking for a trusted partner to apply for a home loan , you can head to Aditya Birla Capital. Choose from a range of housing finance products offered at competitive interest rates to help you transform your dream of owning a home into a reality.{2B251354-8528-4703-8BE7-CF3372CF6118}