MCLR- A new benchmark for home loan borrowers

MCLR - Blessing To Home Loan Borrowers

People who are thinking of taking a new home loan or are currently paying back a previous one now have a new benchmark rate to keep track of. The lending rate which is based on the marginal cost of funds (MCLR) is set to replace the current base rate. If opting for a floating rate of home loan, the lending rate will be against the MCLR. While this may be applicable only on loans taken after April 1st, existing borrowers too will be affected. This is due to the fact that the leading banks have set their interest rates based on the MCLR, which is lower than the existing rates. Old borrowers have the choice to move to the new system of interest, however, keep in mind that if you had opted for a floating rate of interest, banks charge an interest with a mark-up on the base rate, also called spread. If the new system is put into effect, banks will add a spread to MCLR and not the base rate to get the loan rate. Banks will now show 5 different MCLR’s ranging from overnight tenures to one year as compared to the single base rate banks declared before. The long term loans provided by banks will be based on the one year MCLR and hence this is the rate which should be monitored. Since the MCLR uses the latest rates offered on deposits for its calculations, the rates will fall more sharply than the base rate. The one year MCLR is 10-30 points lower than the existing base rate. However, MCLR will not result in a lower lending rate automatically from all banks. Some banks do offer deals under the MCLR, which makes their home loans more attractive than the competition. If this new system comes into play, the home loan market will change greatly, making home loans more attractive for people to avail. Related Articles:

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