With the festive season to begin soon, the State Bank of India (SBI), country's largest lender, has announced a reduction in its Marginal Cost of Funds based Lending Rate (MCLR) by 10 bps across all tenors. The 1 Year MCLR would come down to 8.15 per cent per annum from 8.25 per cent per annum with effect from 10th September 2019. This is the fifth consecutive cut in MCLR in FY 2019-20. The SBI’s 1 Year MCLR had come down to 8.25 per cent from 8.40 per cent with effect from 10th Aug 2019.
Existing borrowers gain
The SBI’s recent move is expected to help the existing MCLR linked borrowers reduce the interest cost in servicing their loans. If a borrower has a 12-month period, the home loan ( and hence the EMI’s) will be reset at the end of 12 months. Those whose reset date is in September or over the next few months will stand to gain in terms of lower EMIs. A lower MCLR will effectively mean a lower home loan interest rate and thereby, a low-interest burden, keeping other factors constant. Also, those who go for MCLR linked loans in September should revise their home loan plans as repo-linked lending rate (RLLR) home loan will become the norm.
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New borrowers gain more
Going forward, from October 1, banks have been asked by RBI to offer home loans linked to an external benchmark only. Therefore, MCLR linked loans will not be offered to new borrowers but existing loans linked to bank’s internal benchmark of MCLR will continue.
State Bank of India (SBI) was the first bank to launch a repo-linked lending rate (RLLR) home loan, subsequently, several other banks have already launched similar repo-linked lending rate product, in which home loan interest rate is linked to an external benchmark. In an RLLR loan, any revision in repo rate will be transmitted immediately and in entirety. It, however, is a double-edged sword-any uptick in repo rate will also hurt borrowers from the very next month.
If you have already zeroed-in your house property, there is nothing called the best time to go for a home loan. However, with interest rate cycle on the downtrend and RLLR home loans in the offing, the festive season ahead could help you save some extra interest on your home loan.