SBI’s Low-Cost Offer for Switching to EBR-Linked Home Loans
Good News for SBI Home Loan customers. The State Bank of India has announced an easy to switch offer for its MCLR linked Home Loan customers. Switching from MCLR or base rate linked loans to EBR linked loan can save lakhs of rupees.
Current EBR linked Rates for SBI Home Loans start from 6.70% p.a while MCLR linked Home Loan rates start from 7.45% p.a. The base rate linked SBI Home Loans begin from 7.85% p.a. Thus switching to External Benchmark Linked Rates can save approximately 70-100 bps for customers.
It should be noted here that before Oct 2019, banks offered MCLR linked Home Loans. Thus all customers who availed of mortgage before this threshold are serving high rate of interest on their loans. Home Loans are long term loans. If you have more than 10 years of tenor to serve, you can definitely save enough money by shifting to a lower rate regime.
MCLR vs EBR: Why there is difference?
MCLR is Marginal cost of funds based lending rate which is primarily based on internal benchmarks of the lender. The lender sets the rate of interest based on its internal factors, including cost of lending. The rate of interest resets as per the tenor of MCLR, which is overnight, 1 month, 3 months, 6 months, 1 year or 2 years & so on. In case of Home Loans, borrowers mostly opt for 6 months or 1 year MCLR. Thus the impact of reduced benchmark policy rates effectuate after a substantial gap of 6 months or 1 year. This results in delayed benefit of reduced rates.
However EBR based loans are linked to external benchmarks like repo rate or treasury bills & so on. These rates of interest change as per the change in rate of external benchmarks which are guided by the RBI. So the benefits of reduced rates reach the customer faster in case of EBR Linked Home Loans.
Thus customers who have been serving old regime are bound to pay more than those who are serving the new regime of loans.
Steps to switch to Repo Linked SBI Home Loan
In a one-time scheme, SBI has asked its customers of Home Loans linked to MCLR or Base Rate to switch to an EBR linked Home Loan at a nominal fee.
All you need to do is visit your branch and submit an application for the same.
You are required to pay a one-time charge of Rs 5,000 plus GST which will Rs 5,900 net.
How much you will save by switching to EBR Linked Home Loan?
The saving on switching to EBR linked Home Loan will be substantial. Let’s take an example.
Say, outstanding Home Loan amount is 40 lakhs; remaining tenure is 10 years; the MCLR rate being served is 8.40% p.a.
Now after switching to EBR regime, your Home Loan Interest Rate becomes 7.40% p.a.
So you will save 1% reduction in interest rate for next 10 year. The savings will be approx 2.5 Lakh in interest pay out.
Thus by paying less than Rs 6000 you will be able to save lakhs of rupees.