TIME TO SWITCH YOUR HOME LOAN FROM
FROM BASE RATE TO MCLR
Let us first understand the difference
between Base rate and MCLR.
Base
rate was the minimum rate set by the Reserve Bank of India below which banks
were not supposed to lend to its customers. Base rate was there in system till
March 2015 and thereafter MCLR was applicable.
MCLR (Marginal Cost of Lending Rate)
was introduce from April 2016, MCLR
is based on four components—marginal cost of funds, negative carry on account
of cash reserve ratio (CRR), operating costs and tenure.MCLR is an internal benchmark or
reference rate for the bank which actually describes the method by which the
minimum interest rate for loans is determined by a bank.
The
pace of base rate cut as compare to MCLR
is very slow, For
instance-SBI’s Base rate a year and a
half back was 9.30% and now it’s 9.10%, down by a mere 20 bps whereas
SBI’s MCLR rate a year back was 8.9% and now it’s 8%, down by 90 bps so It would be advisable to switch your base rate home loan outstanding to
MCLR regime of your bank or another financial institution, based on current
rate of interest what they are charging, while switching one should also
consider on costs of transfer.
Some of banks switch your home loan
from base rate to MCLR by charging nominal switching fees so you can switch
within your bank, if not you always have a option to transfer your current
outstanding to another bank or financial institutions.
Let me
explain by giving example
You are
servicing a 20-year home loan of Rs 50 lakes at 9.90% under base rate. Two years
of the loan tenure are over and you have paid a monthly installment of Rs
47,920 and an interest of Rs 9,73,852 in the said time frame. The outstanding
loan stands at the end of 2 years is Rs 48,23,765. If you continue with a base
rate regime, your overall interest outgo would be Rs 65,00,867 for 20 years But
if you switch your outstanding amount to current MCLR rate where banks charges
8.5%interest you will be paying interest of Rs 46,10,497 for remaining 18 years
so effectively you will be saving Rs9,16,518 which is pretty huge amount.
know about low interest rate home loan in Mumbai India
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