Interest rates

PNB Home Loan Interest Rates: PNB Raises Home Loan Interest Rates: By How Much Your EMI Will Increase

The Punjab National Bank (PNB) has raised the interest rate on home loans. The bank raised the repo-linked lending rate (RLLR) by 50 basis points (100 basis points = 1%) from 7.70% to 8.40%.

Along with this, the bank has also increased the marginal cost of funds lending rate (MCLR) by 0.05% across all mandates. The bank announced a 5 basis point hike in the key rate. “The base rate was revised from 8.75% to 8.80% wef 01-10-2022,” the bank’s website said.
NBI MCLR rate as of October 1, 2022

Tenor MCLR existing MCLR MCLR revised October 1, 2022
Overnight 7.05% 7.10%
A month 7.10% 7.15%
Three months 7.20% 7.25%
Six months 7.40% 7.45%
One year 7.70% 7.75%
Three years 8.00% 8.05%

The hike in interest rates, typically charged on a home loan, came after the Reserve Bank of India (RBI) raised its key rate for the fourth time since May 2022.

How much EMI home loan will increase?
All home loans disbursed by banks are currently linked to an external benchmark lending rate (RLLR). With the latest increase in RLLR of 50 bps, here is an example showing the likely impact to your EMI output.

Suppose Mr. X has taken out a home loan of Rs 30 lakh for a term of 25 years. The old interest rate applied on a home loan is 7.90% and the new interest rate is 8.40%.

Amount of the loan Rs 30,00,000
Mandate 25 years
Old interest rate 7.90%
Old EMI output 22,956 rupees
New interest rate 8.40%
New EMI release 23,955 rupees
Increase in NDEs 999 rupees

For the purposes of the calculation, it is assumed that no credit risk premium is charged by the bank.

What is the difference between MCLR and RLLR loan schemes?
If you took out a home loan before October 1, 2019, then it is likely that your home loan is linked to the MCLR scheme. Under the MCLR-based loan scheme, the home loan is usually tied to the one-year MCLR rate.

As per RBI guidelines, “The Marginal Cost of Funds (MCLR) based lending rate prevailing on the date of first disbursement, whether partial or full, will apply until the next reset date, changes in the benchmark during the interim period Future reset dates will be determined accordingly MCLR reset frequency is the term/maturity of the MCLR to which the loan is linked. The reset periodicity must be one year or less. The exact reset periodicity is part of the terms of the loan agreement.”

On the other hand, if you took out a mortgage on or after October 1, 2019, the interest rate on your mortgage is determined on the basis of an external benchmark borrowing rate. In accordance with RBI guidelines, a reference may be any of the following:

  • Reserve Bank of India Policy Repo Rates
  • Indian government 3 or 6 month treasury bill yield published by Financial Benchmarks India Private Ltd (FBIL)
  • Any other benchmark market interest rate published by FBIL.

The interest rate under the external benchmark is reset at least once every three months. Thus, any change in the external benchmark is passed on to the borrowers faster compared to the MCLR-based lending scheme.