You can be relieved that the recent 50 BPS (0.5%) will lower interest rates by the Reserve Bank of India (RBI) will result in lower EMIs (equivalent monthly payments) on home loans. But do you know that the time it takes to influence the rate cut on your EMIs depends on the type of loan you have made? For example, if your home loan is based on MCLR (marginal cost of funds -based lending rate), the changes will take longer to reflect on your EMIs. But if you have adopted Rellr (Repo -linked lending rate) home loans, the impact of RBI’s rate reduction on your EMIs will be faster. Rllr’s is a fairly recent phenomenon in which the interest rate of the home loan is reset every three months and linked to the prevailing repo rates of RBI. In contrast, MCLR is not only based on the repo rate, but also the liquidity in the banking system and costs of funds entered into by banks. As a result, the transfer of interest rate changes is slower in MCLR compared to Rllr. Here is a guide on home loans based on repo rates, the functions, advantages and disadvantages. What is rllr in home loans? As the name suggests, Rllr is linked to the Repo rate set by the RBI. A home loan with a repo-linked home loan is a floating rate loan where the interest rate is in line with the RBI’s repo rate. If the repo rate drops, your loan interest drops. If it rises, your interest rises. Banks and financial institutions calculate Rllr by taking into account the prevailing repo rate and the distribution. The distribution is the extra percentage of banks to cover their operating costs and also includes their profit margins. This ranges from 2.5% -3%, depending on the lender. The interest rate will therefore work out to 8% -8.5% per annum (the current Repo rate of 5.5% plus the distribution) for RLLR-based home loans. “Repo-linked loans are more transparent, fair and responding. It is ideal if you want to take advantage of falling rates and not care about some variability,” says Samit Shetty, founder of Nivāsa Finance, a home loan adviser provider. “Unlike MCLR or base rate loans, repo-linked loans do not rely on internal bank calculations, which offer greater transparency. Interest rates usually adapt every three months compared to 6-12 months in MCLR loans leading to a quick benefit (of) transmission during the cutting of the Repo rate,” says Foram Naik Sheth, NPV-FIRM. “Most older home loans (such as MCLR or base rate) did not quickly pass the RBI rate cuts. With repo-linked loans, banks should update your tariff immediately-usually every three months,” says Shetty. Furthermore, the bank has full control over interest rates in MCLR-based loans, while in RLLR-based loans the change in rates automatically occurs. What are the benefits and how does it affect EMIs? Rllr-based home loans are very beneficial in a falling interest rate cycle. For example, Rllr has dropped by 1% since the beginning of 2025 (from about 9% in January to about 8% after the latest rate reduction). The RBI lowered for the third consecutive time in 2025 for the third consecutive time, reducing it by 100 bps (1%), which will bring the repo rate to 5.5%, the lowest level since August 2022. So, in six months, the savings in EMI would be quite significant. If you took a home loan of £ 40 Lakh with a 20 -year -old term, the prevailing interest rate of about 8.5% will drop to 8% after the latest rate cut. As a result, the EMI on the £ 40 Lakh loan will fall from around £ 34700 to around £ 33450, a drop of £ 1250. “In a falling interest rate scenario, repo-linked home loans lead to a quick reduction in home loan figures as it is linked to the RBI’s repo rate. This results in a lower EMIs or faster repayment of the loan,” says Sheth. The reduction in repo rates by RBI will start reflecting in EMIs for loans on RLLR from August, while it can take until December before any changes in MCLR-based loans occur. What are the disadvantages? Although Rllr-based home loans have many benefits, there are also some disadvantages. Interest rate risk is the biggest shortcoming in RLLR-based loans. If the RBI decides to raise the repo rates, you will eventually pay higher EMIs. “As RBI rates rise, your EMI is rising just as fast. Be prepared for fluctuations. It’s great in a falling rate market, but not ideal if the rates rise,” says Shetty. “In the case of increase in repo rate, the EMIs can rise rapidly, making it more volatile than any other loans. Furthermore, as rates back every three months, EMIs or loan reductions can change regularly,” says Sheth. Although the same is true for MCLR-based home loans, the faster transfer of interest rate changes means that the effect will be faster in RLLR-based loans. Can borrowers transfer to rllr? Borrowers can move to Rllr-based home loans by making a request to the lender. If the money shooter offers RLLR-based loans, you can switch existing loan after paying the necessary fee. “If you are still on MCLR or base rate, your bank may request to usually switch by paying a small fee (£ 1,000-£ 2,000). If your money shooter is an HFC (such as LIC housing), you can refinance with a bank that offers repo-linked loans,” says Shetty. But make the switch only if you are sure about saving. Borrowers, who have a long term of the repayment, say ten years or more, may consider moving their loans to RLLR, as the saving on interest can be significantly. Even in this case, you should be prepared for interest rate risks, as the cycle can turn at any time. If you are closer to completing your loan period, it is better to stay with the existing structure as you will pay unnecessary expenses, except that your loan exposes loan to interest rate risks. Allirajan M is a journalist with more than two decades of experience. He works with various leading media organizations in the country and has been writing mutual funds for almost 16 years.
RBI lowers the repo rate by 50 bps: how your home loan EMIs will be influenced immediately | Mint
