EBLR Explained: Impact on Your Home Loan Interest Rates

For effective financial planning, it is important to know how your Home Loan interest rate is arrived at. External Benchmark Lending Rate (EBLR) is one of the most popular phrases in recent times. But, what does it actually mean and how does one decide it? This article looks at everything that the EBLR entails as well as its impact on home loan interests in India.

Also Read: Home Loan: All You Need to Know – Godrej Capital

What is EBLR?

The Reserve Bank of India introduced the External Benchmark Lending Rate (EBLR) in October 2019. The new system requires that financial institutions link their lending rates, including home loans, to an external benchmark. The most popularly used external benchmark is the repo rate which is the rate at which the RBI lends money to commercial banks.

Key Features of EBLR:

• Transparency: By linking lending rates to external benchmarks, the process becomes more transparent for borrowers.
• Quick Transmission: Changes in the benchmark rate, such as the repo rate, are quickly reflected in lending rates, ensuring that borrowers benefit promptly from rate reductions.
• Standardisation: All lenders adopt a uniform approach, making it easier for borrowers to compare loan products.

How Does EBLR Affect Home Loan Interest Rates?

When you opt for an EBLR home loan, your interest rate is directly tied to the external benchmark plus a spread determined by the lender. This means:

• Immediate Impact of Rate Changes: If the RBI reduces the repo rate, your EBLR home loan interest rate decreases correspondingly, leading to lower Equated Monthly Instalments (EMIs).
• Predictable Adjustments: Regular resets ensure that your loan remains aligned with current market conditions.

Example:

• Repo Rate: 6.25% (as of February 2025)
• Lender's Spread: 2.65%
• EBLR Home Loan Interest Rate: 6.25% (repo rate) + 2.65% (spread) = 8.90%

If the Reserve Bank of India (RBI) reduces the repo rate by 25 basis points, the interest rate for your Home Loan would then drop to 8.65% and this translates into lower EMIs on your part.

Advantages of EBLR-Linked Home Loans

• Immediate Benefits: Borrowers benefit promptly from reductions in benchmark rates.
• Transparency: Clear linkage to external benchmarks makes it easier to understand how interest rates are determined.
• Competitive Rates: Lenders may offer attractive spreads to attract customers.

Considerations for Borrowers

While EBLR home loans offer several benefits, it's essential to consider potential challenges:

• Rate Volatility: Since the interest rate is linked to external benchmarks, it can increase if the benchmark rate rises, leading to higher EMIs.
• Credit Risk Premium: Lenders may add a spread based on your credit profile, which can affect the final interest rate.

How to Calculate Your EBLR Home Loan Interest Rate

To determine your EBLR home loan interest rate, add the current external benchmark rate (e.g., the repo rate) to the lender's spread. Many financial institutions provide online calculators to help you estimate your EMIs based on the current rates.

Example Calculation:

• Loan Amount: INR 50 lakh
• Tenure: 20 years
• Repo Rate: 6.25%
• Lender's Spread: 2.65%
• EBLR Home Loan Interest Rate: 8.90%

Using these figures, you can calculate your monthly EMI and total interest payable over the loan tenure.

Also Read: How to reduce interest payment on Home Loan?

The Bottom Line

With the advent of the External Benchmark Lending Rate (EBLR), transparency in interest rates on a Home Loan has increased in India, resulting in responsiveness to home loans. With recent reductions in the repo rate by the RBI, borrowers with EBLR home loans stand to benefit from lower interest rates and reduced EMIs. It's advisable to stay informed about changes in benchmark rates and understand how they impact your loan. If you're considering to apply for a Home Loan, now is a great time to explore EBLR-related home loan options.

Moreover, use a loan eligibility calculator to determine the amount you can get.

FAQs

Q.1. Is EBLR better for home loans?

A. Benchmarking home loan rates to EBLR offers many benefits. It facilitates enhanced transparency, quicker rate transmission to potential savings on interest payments, empowers borrowers to make well-informed financial decisions and exploit favourable market conditions.

Q.2. What are the disadvantages of EBLR?

A. The high volatility of EBLR is one of the greatest disadvantages of it. Thus, one needs to be prepared to process the successive changes in your loaning rates.

Q.3. Who decides EBLR?

A. EBLR are set by the banks based on external benchmarks such as repo rate by the RBI. So, when RBI changes its benchmark rate, banks adjust EBLR accordingly.

Q.4. Is EBLR mandatory?

A. Yes, EBLR is mandatory for all floating rate retail loans and MSME loans issued by banks since October 2019, as per RBI guidelines.

Q.5. How is EBLR calculated?

A. EBLR (External Benchmark Lending Rate) is like a price tag for loans. Banks set it based on RBI rates. If RBI changes rates, EBLR changes too. So, if RBI lowers rates, your loan interest may drop, and vice versa!

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com.