The Reserve Bank of India has reduced the repo rate 5 times this year by 125 basis points. Several financial experts speculated a sixth repo rate reduction in the current Financial Year to occur at the December meeting of the Monetary Policy Committee. However, the MPC arm of the RBI unanimously maintained the repo rates at 4.65%.
The first repo rates cut was executed by the RBI on 7th February 2019, from 6.15% to 6%. Since then, it had maintained the policy until 4th October when it concluded its fifth such reduction and the last for 2019.
Subsequently, it has prompted all public sector financial institutions to shift from Marginal-linked Lending Rates (MCLR) to Repo-linked Lending Rates (RLLR) as a measure to provide the best home loan interest rates and rates on other terminal credit facilities to borrowers.
Are RLLR loans ideal for borrowers?
Previously, financial institutions maintained their interest rates per the MCLR, which is an internal benchmark. In contrast, RLLR is an external benchmark which will allow RBI to maintain the lending rates of financial institutions directly.
In such, if you are deliberating to shift your home loan to an RLLR home loan, financial experts believe you should wait out until all the financial institutions have adopted the new paradigm.
As most financial institutions are yet to adopt the new system, you would not find enough options at your disposal to consider the ideal option or the best home loan interest rate.
However, there are certain benefits to RLLR apart from RBI regulation. These are –
-Transparency – Interest rate policies from hereon would be more transparent. It will allow you to make a more informed decision regarding your housing loan.
-Faster transmission – Previously, financial institutions changed their interest gradually in response to repo rate changes. Under this regime, interest rate changes would be faster.
Once all financial institutions have adopted RLLR, you should thoroughly examine the market and other associated costs of making a shift before applying for a home loan.
