RLLR home loan is highly volatile and one should be prepared for this type of volatility while going ahead with such a loan.
Currently, State Bank of India (SBI) is one bank to offer a repo linked lending rate (RLLR) where the rate of interest is linked to an external benchmark such as the Reserve Bank of India’s (RBI) repo rate. Interestingly, the lowest home loan interest rate from any lender will be 8.05 per cent on the SBI RLLR home loan. This is after factoring in 40 basis points of mark-up on SBI RLLR of 7.65 per cent effective September 1, 2019.
While all home loans since April 1, 2016 are linked to the bank’s MCLR, an internal benchmark of banks, the SBI RLLR is linked to the RBI’s repo rate, an external benchmark. An external benchmark is supposedly a better tool for effective transmission of policy rates.The SBI RLLR home loan differs from MCLR linked home loan and there is a difference in the way both of them works.
Here are 5 things to know about SBI’s RLLR home loan:
1. Interest rate on RLLR loans
Evert time the RBI changes the repo rate, SBI RLLR will change from the 1st of the following month. SBI’s repo rate linked home loan is based on the Repo-Linked Lending Rate (RLLR) which currently (Since July 1) is 8 per cent. After the repo rate cut by RBI by 35 basis points in August, the RLLR will come down to 7.65 per cent from September 1, 2019. However, there are mark-ups on the RLLR rate which pushes the effective rate higher.
Since July 1, the effective home loan rate of repo rate linked home loan for loans up to Rs 75 lakh, is between RLLR + 0.40 per cent to RLLR+0.55 per cent based on the risk group of the borrower. So, the effective SBI repo rate linked home loan interest rate becomes 8.4 per cent to 8.55 per cent. Based on the risk group of the borrower, the effective SBI repo rate linked home loan interest rate becomes 8.95 per cent to 9.10 per cent, for loans up to Rs 75 lakh.
2. EMI payments
EMI payments in RLLR are not similar to a regular home loan EMI. While interest is to be serviced monthly as and when applied to the account, a minimum 3 per cent of the principal loan amount needs to be repaid every year in equated monthly instalments (EMI) before one attains 70 years. “This is a departure from the earlier amortization calculation, where the percentage of the principal repaid every month increased over time. While more clarity is awaited on the exact implementation, this could also mean that the EMI varies from month to month instead of being a standard equated amount,”says Adhil Shetty, CEO, BankBazaar.com
3. Home loan tenure
The maximum loan tenure is 33 years over and a maximum moratorium permitted of 2 years for under-construction properties is allowed. So, the total loan tenor in such cases cannot exceed 35 years. However, interest applied during the moratorium period needs to be paid on a monthly basis. For ready to move in property, the EMIs will begin from one month from the date of disbursement of the loan.
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To be eligible for the SBI repo rate linked home loan interest rate, one needs to have a minimum gross annual income of Rs 6 lakh. However, the maximum home loan amount will be the lowest of the following:
- Maximum permissible Loan-To-Value Ratio which could be 80 per cent or 90 per cent of the home price.
- Quantum of loan would be decided based on, subject to SBI will consider the Debt Service Coverage Ratio (DSCR ) of a minimum of 1.25 (inclusive of EMIs of the proposed homeloan)
- This means not only your income but also existing debt matters. Higher DSCR can make you eligible for higher loan amount.
- Loan amount actually applied for.
5. Switch to RLLR
As of now, switching one’s MCLR-linked home loan from another bank to SBI RLLR home loan is not allowed. As per the SBI website, the takeover of home loans from other Banks or HFCs is not permitted till any changes are brought in. It also remains to be seen if a reverse switch to MCLR will be allowed from RLLR loan.
Whom does RLLR suit
The decision to opt for RLLR as against MCLR may not be as straight forward as it looks to be. Even the terms for switching from RLLR to MCLR needs to seen. A u-turn in policy rates may leave many borrowers stranded. “The RLLR will be very responsive to changes, even more so than the MCLR. This is especially attractive at a time when the rates are falling. The MCLR resets the interest-only once a year, and even then the transmission may be only partial. However, when interest rates are rising, MCLR provides a cushioning for a certain time. So, the RLLR products are highly volatile, and customers should be prepared for this type of volatility while going ahead with an RLLR loan,” cautions Shetty.