Which is better MCLR or Repo rate linked home loan? First let understand the difference between the two. Repo rate is the rate at which RBI lends to banks and acts as a benchmark for overall interest rates. Whereas MCLR is the minimum rate at which banks can lend and it is based on 4 components: marginal cost of funds, tenor premium, operating expenses and margin. A rise in MCLR has direct impact on borrowers as it makes home loan expensive. Repo rate-linked lending rates (RLLR) are more transparent than MCLR, which are inflexible and have a longer reset cycle. Borrowers are better off in a repo rate environment because they will get a lower rate of interest in the short to medium term. While deciding to switch to a repo-linked lending rate, the borrower must compare the present rate of interest (RoI) with MCLR, the rate linked to the external benchmark and the reset frequency. Then calculate the most beneficial offer.

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