Home loans to get cheaper for pre-April 2016 borrowers
Bringing relief for pre-April 2016 home loan borrowers, RBI directed banks link older home loan rates to the current market-linked benchmark. The move will reduce the interest rate on home loans taken prior to April-2016.
In its new policy statement, RBI has asked banks to link the base rate to MCLR from April 1, 2018.
Prior to April-2016, home loans were linked to base rate, which was arbitrarily decided by banks. This base rate takes time to reflect rate cuts due to which borrowers were not getting the benefit of rate cuts. The RBI later introduced MCLR, which is linked to the cost of funds. While borrowers after April 2016 got the benefit of MCLR, those with older loans continued to pay as per the base rate.
The RBI has also made it clear that banks should allow base rate borrowers to switch to MCLR. The existing loans can run till maturity or borrowers can switch to MCLR on mutually agreed terms. The base rate borrowers have two options, either switch to MCLR based lending with the same bank or else transfer from another bank on MCLR mode.
What
is
MCLR?
Marginal
cost
based
lending
rate
is
an
interest
rate
formula
used
by
banks
to
set
their
interest
rates
for
different
loans.
Banks obtain funds for lending from deposits by customers and by borrowing from the RBI.
Under MCLR, banks will set interest rates on loans based on interest rates given for deposits and the repo rate (the rate at which bank borrows from RBI).
OneIndia News