As was broadly anticipated, the Reserve Bank of India (RBI) kept the repo price continual at 4 per cent in its December 2020 monetary policy now. It remains to be observed how the borrowers will advantage offered the banks’ MCLR or RLLR comes down more than the subsequent handful of months. While any fall in Marginal Cost of Funds primarily based Lending Rate (MCLR) will assist these borrowers who have their loans linked to it and their re-set date is nearing, the reduction in Repo Linked Lending Rate (RLLR) will assist new borrowers to take loans at a reduced price of interest.
New borrowers who require a loan now will have to take it as per the bank’s RLLR. The banks, nonetheless, may possibly not offer you loans on their RLLR but based on the loan quantity and other elements, the efficient price may possibly differ. On typical, for the majority of borrowers primarily based on the loan quantity, profession, gender and so forth, the property loan interest price is 7 per cent or even larger across most banks. Some of the banks that a new borrower may possibly discover for the very best property loan interest price contains SBI, LIC Housing Finance, ICICI and HDFC.
Existing borrowers on MCLR
If you are a borrower with a loan linked to Marginal Cost of Funds primarily based Lending Rate (MCLR), the fall in MCLR will assist you spend reduced EMIs on your loan as and when your reset-period comes up. Let us see how a one hundred basis points or 1 per cent reduce in property loan interest price impacts your EMI and total interest expense.
Assuming a property loan of Rs 35 lakh for 15 years, the savings in EMI and interest ( On one hundred basis points fall) will be:
EMI Saved – Rs 1860 ( Annually Rs 22,320)
Total interest saved – Rs 1.87 lakh
MCLR Vs RLLR loans
Since April 2016, when the Marginal Cost of Funds primarily based Lending Rate (MCLR) was introduced, the 1-year MCLR has fallen by almost 200 basis points. Among other elements, the MCLR is primarily based on the bank’s personal expense of funds.
However, considering the fact that October 1, 2019, RBI has mandated banks to offer you retail loans such as property and auto loans linked to an external benchmark, which for most banks is the RBI repo price. Every time, RBI revises the repo price, the revision in the interest price is a lot faster for the borrower compared to the loans linked to MCLR.
What to do
New borrowers may possibly discover 2-3 lenders and ask for the efficient property loan interest price primarily based on their loan quantity, gender and period of the loan. Those who have their loan primarily based on MCLR may possibly ask the banker to switch their loan to RLLR primarily based lending. This may possibly incur a expense and therefore take into consideration the remaining tenure of the loan prior to taking this step. But bear in mind, no matter if its MCLR or RLLR property loan, hold a prepayment program handy to repay the loan quantity as early as doable. The early you repay the loan, reduced will be the interest burden for you.