Home loan: From October 1, 2019, RBI has made it mandatory for banks to link floating rate personal loans, auto loans and home loans with the repo rate.
Home loan: The Reserve Bank of India (RBI) has not made any change in the policy rates in the meeting of the Monetary Policy Committee (MPC) on February 10 today. RBI has retained the repo rate at 4%. At the same time, the reverse repo rate will also remain at 3.35%. RBI repo rate has a direct and immediate effect on home loan interest rates. Repo rate is the interest rate at which commercial banks borrow money from RBI. Reverse repo rate, on the other hand, is the rate at which banks get interest on the money deposited by them with RBI. From October 1, 2019, RBI has made it mandatory for banks to link floating rate personal loans, auto loans and home loans with the repo rate. In most banks, fresh home loans are based on the bank’s Repo Linked Lending Rate (RLLR), also known as the External Benchmark Rate (EBR).
The impact of any change in the repo rate in RLLR home loans for borrowers is immediately visible as compared to MCLR linked loans. Marginal Cost of Funds (MCLR) was introduced from April 2016. MCLR is an internal benchmark. This is the interest rate of a bank, below which it does not give loan to anyone. It is based on the bank’s own cost of funds.
Valentine’s Day Offers: Gift to give to your partner on Valentines Day? Discount is available here including Flipkart and Amazon, check details
This will affect your EMI
Going forward, EMI payers on home loan and car loan based on flexible interest rate will continue to pay almost the same rate of interest as is currently applicable. Most of the banks are currently offering home loans at an interest rate of around 6.5 percent. For those who are looking to take a home loan to buy their home, it is a good time to apply at this time as the interest rate on home loans is currently at the lowest level in many years.
Banks may not offer loans against their RLLR, but depending on the loan amount and other factors, the effective home loan interest rate may vary. The average home loan interest rate across most banks is 7 per cent or more for most borrowers, depending on the loan amount, profession, gender, etc. Banks where borrowers can get cheap home loans at present include SBI, LIC Housing Finance, Bank of Baroda, ICICI and HDFC, Kotak Mahindra Bank etc.
Life Insurance: Going to buy a life insurance policy for the first time? If you take care of these things, you will not regret it
Even those borrowers who are paying EMI based on MCLR may have some variation in their monthly installments. If you have taken a loan on Marginal Cost of Funds (MCLR) basis, the reduction in MCLR will help you pay lower EMIs on your loan. Existing borrowers who have already taken a loan before October 1, 2019, can continue their loan at MCLR or switch to RLLR. MCLR loan can be converted into RLLR but before doing so one should carefully evaluate the cost-benefit. Before making the switch, one should wait for a few more months to understand the interest rate fluctuations properly. Select a lender that offers a low interest rate based on your profile. Even a deduction of 100 basis points can help you save a few lakh rupees depending on the remaining tenure of the loan.
(Article: Sunil Dhawan)
Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.
,