Home buying, which used to be an aspirational dream a decade ago has been made much easier to realize owing to a number of easily accessible financing options. To make home-buying accessible by all, RBI has made it mandatory for all the banks to provide loans at Repo Linked Lending Rate.
In this blog, we will be answering all your queries regarding Repo Linked Lending Rate and how it creates an impact on the EMIs which you have to pay for your home loan.
1. What is RLLR (Repo Linked Lending Rate)?
As the name suggests, repo linked lending rate or RLLR is the lending rate which is linked to the RBI’s repo rate. However, the effective RLLR interest rate depends on multiple factors. The RLLR-linked home loan interest rate will depend on several factors such as what the loan amount is, the loan-to-value of the loan and even the risk group of the borrower, amongst other things. There can be a Spread or Margin charged by the bank as well. For example, a bank may have an RLLR of 6.5 percent, but the actual home loan interest could be 7.5 percent, of which 1 percent will be the Spread or Margin of the bank. Banks are free to fix Margin while lending to borrowers.
2. Why did RBI implement RLLR?
The Reserve Bank of India has stated that banks are not satisfactorily transferring the cuts in policy interest rates to borrowers, and therefore, has asked lenders to mandatorily link all home loans to an external benchmark.
The central bank has so far this year cut interest rate by 110 basis points but lenders have transmitted only a part of it to borrowers in the form of a lower cost of taking loans. Such instances compelled RBI to take necessary actions to link repo-rates with home loan interest rates.
3. How does RLLR home loan work?
When banks borrow funds from the RBI, it is at the repo rate. Lowering of repo rate by the RBI makes banks lending at a lower rate. Therefore, in the case of lending based on RLLR, the home loan interest rate will move up or down as per the movement in the repo rate.
Let us see with the help of an example. Say, the RBI’s repo rate is 8.35 percent and is cut by 35 basis points to settle at 8 percent, the RLLR of your home loan will also get reduced by 35 basis points. If the repo rate, in the above example is hiked, the scenario is reversed.
4. What are the benefits of RLLR to homebuyers?
RLLR will have a positive impact on homebuyers who are looking to avail home loans, as there will be a resemblance in rates of interest from across the lenders.
Also, the adoption of RLLR will promote a transparent ecosystem where home buyers will be aware of the interest rates directly from the RBI.
Earlier, banks used to pass on the benefit of repo rate cut to home buyers at delayed intervals which will now be immediate. Thus, it’s a win-win situation for all home buyers.
5. Is your EMI burden reduced in RLLR Home Loans?
Yes, the existing repo rates are lower than the average home loan rates, and adopting to RLLR will substantially reduce your EMI burden. Also, with favorable government policies aiming at Housing for all like Reduced GST, PMAY (Pradhan Mantri Awas Yojana), the RLLR is likely to reduce further creating it a great time to buy your much-awaited dream home!
Over the past 4 quarters, RBI has reduced Repo Rate from 6.25% to 5.75% whereas, home loan interest rates charged by banks do not showcase this favorable change as banks have failed in passing on the benefits to the consumers. Thus, this revision of charging RLLR will be positive for all homebuyers who wish to take a loan for entering into their dream homes.
We’ve tried to answer a few commonly asked questions about Repo Linked Loan Rate as we believe in empowering all home buyers. If you have any further queries regarding this topic or anything else related to the world of Real Estate, feel free to comment or write to us at email@example.com and one of our real estate experts will get back to you.