MCLR vs RLLR: Meaning & Key Differences in Home Loan Rates

Two Home Loans can carry the same rate today and still cost different amounts over the years. The benchmark underneath decides how often your rate is reviewed and how soon a cut reaches you.

Sudhir Rane is a production supervisor at an auto components unit in Nashik. He took a Home Loan in 2018 and has fourteen years still to run. Twice in the past year the repo rate has been cut and twice his EMI has stayed exactly where it was. A colleague on a newer loan saw his instalment drop within months. Sudhir does not know why the two loans behave differently or whether anything can be done about his.

What Is RLLR (Repo Linked Lending Rate)?

The RLLR full form is Repo Linked Lending Rate. The repo rate is what lenders pay to borrow from the Reserve Bank of India, announced at policy meetings and published by the regulator. Your lender adds a margin on top, called a spread.

The formula is short:

RLLR = Repo Rate + Spread

If the repo rate is 5.50 per cent and your spread is 2 per cent, your rate is 7.50 per cent. Your credit score and loan size decide that spread. It is fixed at sanction, so any later change in your rate comes from the benchmark alone.

• You can verify it through the regulator, which publishes the repo rate, so you can check why your rate moved.
• It is reviewed often, where this benchmark applies, at least once every three months.

The speed works both ways. Your EMI can fall quickly and rise just as quickly. Can your budget absorb an EMI that may change up to four times a year?

What Is MCLR (Marginal Cost of Funds Based Lending Rate)?

The MCLR full form is Marginal Cost of Funds Based Lending Rate. It started in April 2016 and is a floor rate, so a lender cannot offer a loan below it. The figure comes from the costs of the lender rather than a published benchmark.

The formula has three main parts:

MCLR = Marginal Cost of Funds + Operating Costs + Tenor Premium

• Marginal cost of funds: what the lender pays to raise money.
• Operating costs: the expense of running the business.
• Tenor premium: the risk carried over a longer loan period.

This calculation is internal, so your rate does not move on a policy announcement. It changes only on a review date in your loan agreement, usually every six or twelve months. This is what Sudhir has been running into. A cut announced soon after his review date waits a full year.

The Reserve Bank of India found that rate cuts were not reaching borrowers quickly enough under this method. From 1 October 2019, certain categories of regulated lenders had to move new floating-rate retail loans to an external benchmark. If you are on MCLR today, you most likely started before that change.

Also Read: MCLR vs Repo Rate: What Every Home Loan Borrower Should Know

Do You Actually Get to Choose Your Benchmark?

This part is often skipped and it changes the whole decision. Since 1 October 2019, some categories of lenders must link new floating-rate retail loans, including Home Loans, to an external benchmark. If your lender is one of them, your benchmark is already decided.

Other lenders work under different rules. They set their own internal benchmark, often called a Prime Lending Rate and offer a discount on it. This behaves more like MCLR, so the name is not the whole story. Three things matter more:

• How often is the rate reviewed?
• What spread or discount do you receive?
• Does the lender pass cuts to existing borrowers as well as new ones?

Two questions tell you where you stand. Was your loan sanctioned before or after October 2019? Does your sanction letter name an external benchmark or a rate the lender works out itself?

Sudhir checks his and finds an internal rate reviewed every twelve months. That opens a harder question. He has three routes:

• Stay put: no fee, but cuts keep reaching him a year late.
• Convert with his existing lender: faster reviews, at the cost of a one-time fee and a reset spread.
• Move elsewhere: possibly a better rate, with processing and legal charges on top.

Meera is taking a fresh loan, so her benchmark is already settled. Her comparison is the spread and the review frequency on each offer.

How Does Each Benchmark Change Your EMI?

This is where the difference shows up in your monthly outgo.

• On an RLLR-linked loan: your rate is reviewed every three months. A cut reaches you in the following quarter and so does a rise. Over a long tenure, that timing works in your favour when rates fall, at the cost of a monthly figure that is never settled.
• On an MCLR-linked loan: your rate holds steady until the review date. This makes budgeting easier and shields you when rates rise, though the same delay holds back savings when rates fall.

Each suits a different household. A borrower with room in the budget gains more from quarterly reviews. One with little room may value a known EMI for twelve months. Neither position is wrong.

The table below sets out where the two differ and what each difference means for you.

Read across any row and the pattern repeats. What one gives, the other holds back. Neither is the better product. The question is which cost your household can carry more easily. Your rate is the benchmark plus the spread and only the benchmark makes the news.

Sudhir asks about converting and is quoted a rate lower than his current one. It looks like an easy decision. He almost signs before asking what spread the new rate carries and finds it wider than the one he holds today. The headline rate is lower only because the benchmark is low right now. When it rises, that wider spread rides on top for fourteen more years.

• Two borrowers at the same lender on the same day can hold different rates for this reason. Ask for the spread in writing before comparing anything else.

Should You Switch from MCLR to RLLR?

Where a real choice exists, three things decide it: years left, budget room and where rates are heading. A longer tenure favours faster reviews; a tighter budget favours a settled EMI.

If you are on an internally set rate with years still to run, a switch is worth pricing properly. Work through these steps before you raise the request.

• Find the real gap: Compare your current rate against the external benchmark rate today, spread included. A gap under about a quarter of a percentage point rarely repays the effort.
• Add up the full cost: A switch carries a one-time fee plus tax. Measure the total against your savings across all remaining years.
• Check the new spread: Switching resets your margin. A wider spread can cancel most of the gain, so ask for the revised figure in writing.
• Compare a balance transfer: If your lender offers poor terms, moving elsewhere may work out better. Weigh processing, legal and valuation charges against the saving.

Test your instalment a percentage point above today using a Home Loan EMI Calculator. If that figure still fits your monthly surplus, faster reviews are a cost you can carry.

• Confirm the prepayment position: The Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025 restrict prepayment and foreclosure fees. The restriction covers floating-rate loans to individuals for non-business purposes. Lender category and date affect this, so confirm with your lender. A switch changes how fast your rate moves, not what you owe.
• If your aim is to close the loan sooner, a part-payment does more than a change of benchmark. Where both are open, part-pay first.
• A rate cut brings a common surprise: Many lenders hold the EMI steady and shorten the tenure instead. You save interest either way, but your outgo does not change. Ask in writing if you want the EMI reduced.

Also Read: How to Calculate Home Loan EMI: A Complete Step-by-Step Guide

What Do Borrowers Get Wrong When Comparing Benchmarks?

These errors come up often enough to be worth watching for from the sanction stage.

• Comparing rates without checking the benchmark: Two offers at the same rate today move apart within a year if one is reviewed quarterly and the other annually.
• Treating the lowest rate as the cheapest loan: Processing fees, legal and valuation charges and insurance all count. The Key Facts Statement lists these.

Godrej Housing Finance offers quick sanction, a paperless application and minimal documentation, along with a balance transfer facility for borrowers moving an existing loan across. For anyone weighing a switch, the terms at the receiving end matter as much as the benchmark left behind.

Final Thoughts

The choice depends on how quickly you want a policy rate change to affect your EMI. An external benchmark usually reflects it within a quarter but may cause more frequent rate changes. An internal benchmark may offer greater stability, although the impact may take longer to appear.

For a new loan, compare the spread, review frequency and total borrowing cost. For an older loan, check your sanction letter, current rate and next review date. Then compare the possible savings with the conversion fees.

Sudhir requests the revised spread in writing and includes the conversion fee in his calculation. He compares the impact over the remaining fourteen-year tenure, rather than looking at one year alone. Since the savings are meaningful, he converts the loan after making a part-payment from his bonus. He cannot control where rates move next, but he has reduced the time taken for the next rate cut to reach his loan.

Apply Now for a Home Loan.

FAQs

Q.1. What is the main difference between MCLR and RLLR?

A. RLLR is tied to the repo rate published by the Reserve Bank of India. The lender works out MCLR from its own costs. Where RLLR applies, the rate is reviewed at least once a quarter. MCLR moves only on the review date in your agreement, usually every six or twelve months.

Q.2. Can a new Home Loan still be taken on MCLR?

A. Since 1 October 2019, some categories of lenders must link new floating-rate retail loans to an external benchmark, so MCLR is not offered on those. Other categories follow a different framework. Check the sanction letter or ask the lender.

Q.3. Is RLLR always better than MCLR?

A. RLLR is not always better, as its faster reset may pass on both rate cuts and increases sooner. MCLR may suit those who prefer relatively steadier repayments over a longer review cycle.

Q.4. Are all Home Loans linked to the repo rate?

A. Floating-rate Home Loans from some categories of lenders are linked to the repo rate. Others use their own internal benchmark and fixed-rate loans are not linked at all. Your sanction letter names the one that applies. Switching back is also possible, subject to lender policy and a fee.

Q.5. How often does an RLLR-linked Home Loan rate change?

A. Where the rule applies, the rate is reviewed at least once every three months, so it can change up to four times a year. Whether it does depends on whether the repo rate moved.

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