Want to Buy A House? Know How MCLR Can Affect Your Home Loan

Are you waiting to avail a Home Loan to finance your dream house at the base interest rate of the lender? Stop, as opting for the MCLR based Home Loan interest rate can work out to be a better deal. How? Read on.

I recently met two friends of mine who have availed housing loans. This is what they were facing now. Have a look.

One of my pals, Shashank had availed a Home Loan to purchase a home near his office 1 year before. After he started making the payments, he realized that he was paying a higher interest rate on the Home Loan as compared to one of my other friend, Shubham.

Shubham had availed a similar loan as Shashank and yet faced no stress about the repayment. On the other hand, Shashank found it tough to manage monthly expenses. Shubham informed him that he had availed the MCLR in Home Loan while Shashank was on the base-rate based loan. Thus, opting for the MCLR based Home Loan interest rate was the factor that was helping Shubham stay relaxed.

If you are also stuck in a similar situation to my two friends, this post will help you know the difference between the two and how MCLR in housing loan is a better deal.

What is MCLR?

MCLR stands for the Marginal Cost of Funds-based Lending Rate. The Reserve Bank of India has set the MCLR as the new benchmark for lenders. It depends on the marginal cost of funds, lender’s operational expenses, cash reserve ratio, and tenor premium, a charge charged by lenders for longer loans.

How is MCLR in Home Loans Good for Borrowers?

MCLR is lucrative as it easily shifts the repo rate change quickly. It means that your Home Loan expenses will fall when the market interest rates will fall. As a result, it means that you EMIs will also get changed, easing the burden of the loan. Thus, when you will pay a lower EMI on the loan on time, it will help you improve your CIBIL Score.

Thus, opting for an MCLR will help make a transparent and efficient option when pitted against the base rate arrangement.

Can You Switch Your Existing Home Loan Rates to MCLR rates?

Existing Home Loan borrowers with a base rate Home Loan arrangement need not worry as they can always switch their Home Loan rates to MCLR. Yes, this is possible when you agree to pay a fee to your existing lender and request to transfer your Home Loan to the MCLR.

If you are concerned about the transfer charges, don’t worry as the transfer change will be nominal and won’t cost you dearly. You can measure your new Home Loan interest rate and fees before making a switch.

The only thing that you need to compare is if the charges are lesser than your new interest rate.

If you are willing to opt for a Home Loan, it can be taxing for anyone since it’s a long-term loan.

Nonetheless, you can negate the burden by selecting the Home Loan interest rate system prudently. With MCLR being embraced all over, you can easily help yourself avail a better deal.

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