MCLR (Marginal Cost of Funds-based Lending Rate) is the internal benchmark rate used by banks to determine lending rates for floating-rate loans, including home loans. When banks reduce their MCLR, the interest rates on existing loans linked to MCLR typically decrease, leading to lower EMIs.
Recent MCLR Reductions by Leading Banks
Several major banks have recently announced MCLR cuts:
Punjab National Bank (PNB): Reduced MCLR by up to 15 basis points across various tenures, effective September 2025.
Bank of India (BoI): Implemented a reduction ranging from 5 to 15 basis points across all tenures, excluding the overnight tenure, effective September 2025.
State Bank of India (SBI): Reduced MCLR by 5 basis points across loan tenures, effective August 2025.
HDFC Bank: Adjusted MCLR across various tenures, effective August 2025.
These reductions can lead to significant savings for borrowers with home loans linked to MCLR.
Potential EMI Savings
For example, a 50 basis point (0.5%) reduction in the interest rate on a ₹50 lakh home loan with a 20-year tenure can lower the EMI by approximately ₹820 and reduce the total interest burden by nearly ₹2 lakh over the loan's life.
MCLR vs. EBLR: Which Offers Quicker EMI Relief?
MCLR-linked loans: Adjustments occur at the bank's discretion, typically during annual reset periods, leading to delayed EMI reductions.
EBLR-linked loans: Adjustments are more immediate, as they are tied directly to the RBI’s repo rate and reset quarterly.
Borrowers seeking quicker EMI relief may prefer EBLR-linked loans.
Steps to Maximize EMI Reduction
Confirm Loan Type: Verify if your loan is linked to MCLR or EBLR.
Check Reset Period: For MCLR-linked loans, determine when your next reset is due.
Consult Your Bank: Inquire whether the recent MCLR reductions have been passed on.
Consider Refinancing: Switching to an EBLR-linked loan may provide faster benefits.
Maintain a Good Credit Score: Higher scores may help negotiate better rates.
Final Thoughts
Recent MCLR reductions present a valuable opportunity for home loan borrowers to reduce their EMIs. However, the impact varies based on your loan’s linkage and reset schedule. Staying informed and proactive can help you capitalize on these rate cuts and achieve significant savings over time.
FAQs:
Q1. What is MCLR and how does it affect my home loan?
MCLR (Marginal Cost of Funds-based Lending Rate) is the benchmark rate banks use to price floating-rate loans. A reduction in MCLR can lower your home loan interest rate, reducing EMIs.
Q2. How much can my EMI reduce if MCLR is cut?
The reduction depends on your loan amount, tenure, and interest rate cut. For example, a 50 basis point (0.5%) reduction on a ₹50 lakh, 20-year loan can lower EMIs by around ₹820 per month.
Q3. Do all home loans benefit immediately from MCLR cuts?
No. MCLR-linked loans are usually adjusted at the bank’s reset period, which may be annual or semi-annual. Loans linked to EBLR adjust faster.
Q4. Can I switch my MCLR-linked loan to benefit sooner?
Yes, borrowers can consider refinancing to an EBLR-linked loan or negotiating with the bank to pass on the rate cut sooner.
Q5. Which banks recently reduced MCLR in 2025?
Major banks like PNB, Bank of India, SBI, and HDFC have recently announced MCLR reductions, resulting in potential EMI savings for borrowers.
Published on : 8th September
Published by : SMITA
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