The Impact of EBLR & MCLR on Your Home Loan Explained

On 6 August 2025, The Reserve Bank of India unanimously decided to pause its repo rate at 5.50%. This decision came right after a 100 basis point (bps) cumulative cut over the past three policy cycles. And for many home loan applicants, that recent 50 bps cut in June brought a big financial relief, especially if their home loan rate was linked to repo rate or EBLR (base rate considered by banks on which a certain margin is added to calculate your final loan interest rate).

In 2025, not all home loan EMIs will respond equally to RBI decisions. If you’ve seen your EMI reduce within weeks of the repo cut, chances are your loan is linked to the EBLR (External Benchmark Lending Rate). If the rate cut happens after a prolonged period of time, generally after 6 months since repo rate cut, your loan might be linked to MCLR (Marginal Cost of Funds Based Lending Rate) system .

This blog breaks down how these two systems work, how they affect your EMIs, and whether now is the time to make the switch.

What is EBLR and How Does It Work?

The External Benchmark Lending Rate (EBLR) is a loan pricing mechanism introduced by the RBI in October 2019 to improve transparency and ensure quicker transmission of monetary policy decisions to borrowers.

Under EBLR, your loan interest rate is directly linked to an external benchmark — typically the RBI’s repo rate (though banks may also use other approved benchmarks like the 3-month T-bill rate).

Key Features of EBLR-Linked Loans

• Fast EMI changes: Interest rates reset every 3 months (may increase or decrease based on RBI’s monetary policy)
• Full transparency: Benchmark is public and RBI-regulated
• Aligned with policy: Changes in RBI stance are passed on directly

What is MCLR and How Does It Work?

The Marginal Cost of Funds-based Lending Rate (MCLR) was introduced in April 2016 to replace the older base rate system. It’s a bank-internal benchmark, calculated based on the bank’s cost of funds, operating costs, CRR (Cash Reserve Ratio), and other factors.

Unlike EBLR, MCLR is not linked to an external rate like the repo. Each bank decides its own MCLR, and loans are priced with a fixed spread over this rate.

Key Features of MCLR-Linked Loans

• Based on Bank’s internal policy
• More rate stability in volatile cycles
• Still used for many older home loans before 2019 or by borrowers who didn’t opt to switch

EBLR vs MCLR: Which Impacts Home Loan EMIs More?

Let’s compare the two systems side by side to understand how they profoundly affect your home loan in 2025:

In a falling interest rate cycle, EBLR borrowers benefit faster and more directly. But if you prefer rate predictability, MCLR offers more stability — though it may cost you more in the long run.

Latest Impact on Home Loans in 2025

Let’s look at how the recent RBI repo cuts are playing out in real borrower experiences:

1. June 2025: RBI cuts repo rate by 50 bps

EBLR-linked borrowers saw home loan rates fall almost immediately in July, with EMI reductions kicking in within 1 billing cycle.

2. July 2025: Major traditional banks lowered MCLR by 20–25 bps

MCLR borrowers will benefit only when their annual reset date comes around, meaning the impact is delayed by months.

3. August 2025: RBI keeps repo rate unchanged at 5.50%

EBLR borrowers will hold steady. MCLR borrowers might just now see the benefits of earlier repo cuts, depending on their reset schedule.

This gap in responsiveness shows why EBLR is currently more borrower-friendly, especially in an environment where the RBI is actively adjusting rates.