Paying Home loan on Base rate? Switch to MCLR now

The year 2017 began with a bang for home loan seekers out there. With almost all the major lending institutions in the country including the likes of SBI and ICICI have lowered interest rates on home loans, it is certainly the best time to go ahead and purchase your dream home.
 
Home loan from SBI is now available for as low as 8.60 percent interest rate down from 9.10 percent while private sector major HDFC is offering home finance at 8.7 percent interest rate. Almost all major banks have cut their lending rates by as much as 0.40 percent whThe year 2017 began with a bang for home loan seekers out there. With almost all the major lending institutions in the country including the likes of SBI and ICICI have lowered interest rates on home loans, it is certainly the best time to go ahead and purchase your dream home.
 
Home loan from SBI is now available for as low as 8.60 percent interest rate down from 9.10 percent while private sector major HDFC is offering home finance at 8.7 percent interest rate. Almost all major banks have cut their lending rates by as much as 0.40 percent which makes us realise the fact that it is best to switch to MCLR if you have been repaying your loans on the erstwhile base rate system. Let us discuss this in detail.
 
Home loan linked to base rate? Switch now to MCLR
 
The recent rate cut has widened the gap between base rate and the current MCLR. As a result, switching to MCLR based interest rate will certainly benefit those who have taken a loan based on base rate. At the moment, the base rate is around 10 percent while the recent rounds of interest rate cuts have taken the MCLR to around 8.70 percent. So it will certainly be a smart move to switch to MCLR.
 
Often it has been seen that banks hesitate to pass the benefits to their borrowers whenever the RBI reduces the repo rate. As a result, base rates remain more or less the same even after a cut in repo rate. However, parameters used in computing MCLR are linked to repo rate. So whenever RBI reduces the repo rate, its impact can be seen in MCLR.
 
Moreover, with banks now flushed with cash post demonetization of old 500 and 1000 rupee notes, it will further help bring down the lending rates.
 
However, if you have recently borrowed home loan on MCLR based rates, there isn’t much immediate benefit for you at the moment. Banks generally re-adjust interest rates on a yearly basis for MCLR linked home loans. For example, if someone has borrowed home loan in April 2016, his interest rate will be reset not before April 2017. Any revision in interest rate by bank or RBI will not affect your EMI till your rate reset date.
 
Base rate Borrower? Here are the two things you can do
If your home loan is linked to base rate and still have considerable loan repayment period ahead, you can consider the following options: Either switch your home loan to MCLR based system to take advantage of the recent interest rate cut or else you can also transfer your loan to some other bank that is offering loan on cheaper rate than your existing bank. However, switching your loan to another bank will incur several charges including legal fees, processing fees to name a few.
ich makes us realise the fact that it is best to switch to MCLR if you have been repaying your loans on the erstwhile base rate system. Let us discuss this in detail.
 
Home loan linked to base rate? Switch now to MCLR
 
The recent rate cut has widened the gap between base rate and the current MCLR. As a result, switching to MCLR based interest rate will certainly benefit those who have taken a loan based on base rate. At the moment, the base rate is around 10 percent while the recent rounds of interest rate cuts have taken the MCLR to around 8.70 percent. So it will certainly be a smart move to switch to MCLR.
 
Often it has been seen that banks hesitate to pass the benefits to their borrowers whenever the RBI reduces the repo rate. As a result, base rates remain more or less the same even after a cut in repo rate. However, parameters used in computing MCLR are linked to repo rate. So whenever RBI reduces the repo rate, its impact can be seen in MCLR.
 
Moreover, with banks now flushed with cash post demonetization of old 500 and 1000 rupee notes, it will further help bring down the lending rates.
 
However, if you have recently borrowed home loan on MCLR based rates, there isn’t much immediate benefit for you at the moment. Banks generally re-adjust interest rates on a yearly basis for MCLR linked home loans. For example, if someone has borrowed home loan in April 2016, his interest rate will be reset not before April 2017. Any revision in interest rate by bank or RBI will not affect your EMI till your rate reset date.
 
Base rate Borrower? Here are the two things you can do
If your home loan is linked to base rate and still have considerable loan repayment period ahead, you can consider the following options: Either switch your home loan to MCLR based system to take advantage of the recent interest rate cut or else you can also transfer your loan to some other bank that is offering loan on cheaper rate than your existing bank. However, switching your loan to another bank will incur several charges including legal fees, processing fees to name a few.