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This is How You Can Save 48K to Over 1 Lakh on SBI Home Loan in Next 1 Year!

Highlights

  • SBI Repo Rate or MCLR-based Home Loan - Which Should You Go for?
  • The calculation says SBI RLLR can lead to an interest outgo which is lesser than MCLR by around 48K-Above 1 Lakh in 1 year.

The country’s largest lender State Bank of India (SBI) has responded to the call of the Reserve Bank of India (RBI) asking it and many other lenders to price their floating rate home loans to the external benchmarks such as the repo rate. It is the rate at which the central bank lends to commercial banks. SBI has both Marginal Cost of Lending Rate (MCLR) and Repo Linked Lending Rate (RLLR) home loans to offer. The calculation says that those opting for SBI RLLR on September 1, 2019, are likely to save an interest outgo of approximately ₹48,000 to beyond 1 lakh over those going with the more than three year old MCLR benchmark on the aforesaid date for the next one year. Read the post further to check the calculation.

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    Comparison Between RLLR & MCLR on Different Loan Amounts

    The beauty of repo rate home loans is that rates absolutely mimic the change in the repo rate made by the RBI. The change made in the repo rate will come into effect from the first day of the following month. This is much unlike the MCLR where the interest rates are reset every year, irrespective of the change in the benchmark in between. The RBI, in its latest monetary policy held in August 2019, cut the repo rate by 0.35% to 5.40%.

    So, from September 1, 2019, SBI RLLR home loans will be accessible at interest rates starting from 8.05%, reducing from the existing 8.40% per annum, tracking the repo rate cut. Loans up to ₹75 lakh can be accessed at interest rates ranging from 8.05%-8.20%. Whereas, loans above ₹75 lakh can be granted at 8.60%-8.75%. If you see the MCLR-based rates, they stand at 8.35%-8.65%, 8.60%-8.90% and 8.70%-9.05% for loans up to ₹30 lakh, above ₹30 to ₹75 lakh and above ₹75 lakh, respectively.

    Given the slackness in the economy, the RBI could be prompted to cut rates further. So, if the RBI cuts repo rate by a total of 1% (approx. 0.16% across each of the six monetary policy meetings) over the next one year, how much will you gain on your SBI home loan if you apply for 20 years on September 1, 2019? Let’s find out.

    SBI RLLR can thus save an interest outgo amounting to ₹1,13,630 in a ₹50-lakh loan and ₹48,263 in a ₹80-lakh loan over thee MCLR-based loan of the lender in the next one year.

    Computation of Interest Outgo in Repo Rate Linked Home Loan

    The interest outgo of ₹50 lakh loan for the first two months of October-November is calculated at 8.05% for 20 years i.e. 240 months.

    Loan PeriodLoan Outstanding (In ₹)Interest Rate (In Per Annum) Interest Outgo (In ₹)
    Oct-Nov 201950,00,0008.05%66,944

    The remaining balance of ₹49,83,071 is taken into account to calculate the interest outgo for the next 2 months at an interest rate of 7.89% per annum. While calculating the outgo, the tenure is reduced to 238 months.

    Loan PeriodLoan Outstanding (In ₹)Interest Rate (In Per Annum) Interest Outgo (In ₹)
    Dec 2019-Jan 202049,58,3327.89%65,065

    The same methodology is adopted to calculate the interest outgo thereafter. Check out the table below to know the complete calculation.

    Loan PeriodLoan Outstanding (In ₹)Interest Rate (In Per Annum) Interest Outgo (In ₹)
    Oct-Nov 201950,00,0008.05%66,944
    Dec 2019-Jan 202049,58,332
    7.89%65,065
    Feb-March 202049,16,664
    7.73%63,209
    April-May 202048,74,996
    7.57%61,375
    June-July 202048,33,328
    7.41%59,563
    Aug-Sep 202047,91,660
    7.25%57,774

    The calculation for ₹80 lakh loan is made in the same way to that of ₹50 lakh loan.

    Besides SBI, other state-owned lenders such as Bank of Baroda (BoB) and Oriental Bank of Commerce (OBC) have also announced home loans based on repo rate. But they are yet to come out with details.

    Disclaimer – The calculations are for illustration purposes only. The exact amount can vary.