If you took a home loan several years ago, your interest rate might still be linked to MCLR. Meanwhile, newer floating-rate loans from banks are generally linked to an external benchmark, such as the RBI repo rate.
The good news is that eligible existing borrowers may be able to switch their loans from MCLR to a repo-linked interest rate.
This could help you benefit from changes in the RBI’s policy rate, depending on your bank’s pricing and the terms offered.
However, switching is not always free, and a repo-linked loan is not automatically cheaper. Here’s how to make the switch, what charges to check, and when it may be worth considering.
What Is the Difference Between MCLR and the Repo Rate?
Before switching your loan, understand how these two interest-rate systems work.
MCLR (Marginal Cost of Funds-Based Lending Rate) is an internal benchmark calculated by a bank using factors such as its cost of funds and other applicable components. Your loan’s interest rate is generally determined by adding the contractual spread to the applicable MCLR.
Repo-linked lending rate refers to a loan linked to an external benchmark, such as the RBI policy repo rate. The bank adds a contractual spread to that benchmark to determine your interest rate.
Here’s a simple comparison:
| Feature | MCLR-linked loan | Repo-linked loan |
|---|---|---|
| Benchmark | Bank’s internal MCLR | External benchmark, such as the RBI repo rate |
| Interest rate | MCLR plus applicable spread | Repo rate plus applicable spread |
| Rate changes | Depends on the loan’s reset period and terms | Depends on the benchmark and contractual reset terms |
| Benefit when the benchmark falls | May reflect the change at the applicable reset | May reflect the change at the applicable reset |
| Conversion | May require a formal switch request | Subject to the lender’s eligibility and terms |
For background, the Government of India’s Department of Financial Services explains how external benchmark-linked lending works and why banks moved new floating-rate retail loans toward external benchmarks.
How to Shift Your Loan From MCLR to the Repo Rate
The process depends on your bank, loan agreement, and eligibility. In most cases, you should first ask your existing lender about converting your current loan rather than immediately applying for a new loan elsewhere.
Step 1: Check Your Current Loan Details
Review your loan statement or sanction letter and confirm:
- Your current outstanding loan amount.
- Your existing interest rate.
- Whether the loan is linked to MCLR, Base Rate, or another benchmark.
- The applicable spread or margin.
- Your current EMI and remaining tenure.
- The next interest-rate reset date, if applicable.
These details will help you compare your existing loan with the repo-linked option offered by your bank.
Step 2: Contact Your Bank
Contact your bank’s home loan servicing department, relationship manager, or nearest loan servicing branch.
Ask whether your existing MCLR-linked loan can be converted to a repo-linked lending rate. Some banks call this a benchmark conversion, rate conversion, or switch to repo-linked pricing.
Ask the bank to provide the following information in writing:
- The repo-linked interest rate available for your loan category.
- The spread applicable to your account.
- The conversion fee and applicable taxes.
- Any conditions attached to the conversion.
- The date from which the new interest rate will apply.
Do not assume your bank will automatically move your existing loan to the repo rate. Existing loans may continue under their original benchmark until the borrower requests a conversion, where the lender permits it.
Step 3: Submit a Conversion Request
If your bank allows the switch and the terms are suitable, submit its prescribed conversion request.
Depending on the lender, you may need to visit a branch, submit a signed request letter, or follow another process provided by the bank.
For example, ICICI Bank’s official home loan FAQs explain that eligible existing borrowers can request a switch from an MCLR-linked benchmark to repo-linked pricing and that a conversion fee may apply.
Keep a copy of your application or acknowledgement for future reference.
Step 4: Compare the New Interest Rate and Conversion Charges
Before accepting the offer, compare the actual interest rate quoted by your bank with the rate you currently pay.
For example, suppose your current interest rate is 9.00% per year and the bank offers a repo-linked rate of 8.50% per year. The difference is 0.50 percentage points.
That could reduce your interest cost, but the actual savings depend on your outstanding balance, remaining tenure, EMI treatment, and conversion fee.
Ask your bank for a revised repayment schedule so you can understand how the change will affect your loan.
Step 5: Confirm the Effective Date and Revised Repayment Schedule
Once your request is approved, check the confirmation letter or updated loan statement.
Verify:
- The new benchmark and interest rate.
- The applicable spread.
- The effective date of the conversion.
- Your revised EMI or remaining loan tenure, as applicable.
- The next rate-reset date.
Keep the revised documents for your records and check your next loan statement to confirm that the new rate has been applied correctly.
What Are the Charges for Switching From MCLR to Repo Rate?
There is no single conversion fee applicable to every bank. Charges can differ by lender, loan product, and the terms applicable to your account.
For instance, some lenders may offer a conversion without a fee for certain products, while others may charge a one-time switch fee plus applicable taxes.
Before proceeding, ask your bank for a written breakdown of:
- Benchmark conversion charges.
- Applicable taxes or administrative fees.
- Any other conditions or costs associated with the switch.
Important: Do not rely on another borrower’s conversion fee or an old online example. Confirm the current charges directly with your lender.
Is Switching to a Repo-Linked Loan Always Beneficial?
No. Switching makes sense only when the overall terms are favourable.
Consider these situations:
Switching may be worth considering when:
- The new quoted interest rate is meaningfully lower.
- The conversion fee is small compared with the expected savings.
- You want a benchmark that reflects changes in the external reference rate under the loan’s reset terms.
- You have a substantial outstanding balance and enough time left on the loan to benefit from the lower rate.
Switching may not be worthwhile when:
- The new rate is similar to or higher than your current rate.
- The conversion fee offsets much of the expected savings.
- You have only a short period remaining on the loan.
- The bank offers an unfavourable spread or other terms.
Remember, repo-linked interest rates can also rise when the benchmark increases. Switching does not guarantee that your EMI will always decrease.
Example: How Much Could You Save After Switching?
Suppose you have an outstanding home loan of ₹30 lakh with 15 years remaining.
For illustration, assume the interest rate falls from 9.00% to 8.50%, with the remaining tenure unchanged.
| Loan detail | Before switching | After switching |
|---|---|---|
| Outstanding balance | ₹30,00,000 | ₹30,00,000 |
| Assumed annual interest rate | 9.00% | 8.50% |
| Remaining tenure | 15 years | 15 years |
| Approximate monthly EMI | ₹30,428 | ₹29,542 |
Under these assumptions, the EMI would fall by approximately ₹886 per month.
These figures are illustrative estimates, not a bank quotation. They assume a standard monthly reducing-balance loan, unchanged tenure, and an immediate rate change. They exclude conversion fees, taxes, and any other charges.
Your actual savings may be different. Ask your lender for an account-specific repayment schedule before making a decision.
MCLR to Repo Rate Conversion vs Home Loan Balance Transfer
If your existing bank does not offer attractive conversion terms, you can compare them with a home loan balance transfer to another lender.
| Factor | Internal benchmark conversion | Balance transfer |
|---|---|---|
| Lender | Your existing bank | A different bank or lender |
| Main process | Request a benchmark switch | Apply for a new loan to repay the existing one |
| Costs | Conversion fee, if applicable | Processing, legal, valuation, and other applicable charges |
| Documentation | Usually linked to the existing loan | May require fresh eligibility checks and documentation |
| Best next step | Request a written conversion quote | Compare the total cost and savings from the new lender |
A balance transfer may offer a better rate, but it can involve additional paperwork and costs. Compare the total financial benefit over your expected loan period instead of choosing based only on the advertised interest rate.
Frequently Asked Questions
1. Can I convert my existing MCLR home loan to a repo-linked loan?
You may be able to, depending on your bank, loan product, and eligibility. Contact your lender and request its current conversion terms.
2. Will my loan automatically shift from MCLR to the repo rate?
Not necessarily. Existing loans may remain linked to their original benchmark unless the lender’s terms or an applicable requirement provide otherwise. Confirm the process with your bank.
3. Is there a fee for switching from MCLR to the repo rate?
The fee depends on your lender and loan product. Ask for the current conversion charges and applicable taxes in writing before submitting your request.
4. Will my EMI decrease after the conversion?
It may decrease if the new interest rate is lower and the bank reduces your EMI while keeping the tenure unchanged. Alternatively, the lender may adjust the tenure, depending on your loan terms and repayment instructions.
5. Can I switch from MCLR to the repo rate without changing banks?
Yes, if your existing lender permits the conversion for your loan. This is different from a balance transfer, which involves moving the outstanding loan to another lender.
6. What should I compare before switching?
Compare the new interest rate, contractual spread, conversion fee, reset frequency, effective date, and revised repayment schedule. Also consider whether the potential savings justify the cost of switching.
If your home loan is still linked to MCLR, contact your bank and ask for its current repo-linked conversion offer. Get the new interest rate, applicable spread, conversion fee, and revised repayment schedule in writing.
The smartest move is to compare the total cost, not just the interest rate. A switch can be useful when it delivers meaningful savings after charges, but it is not automatically the best choice for every borrower.
