Home Loans have become more transparent with MCLR

Must compare the home loan interest rate for the best rates available with other lenders.

The rate of interest in a home loan on MCLR has now become easier not only to understand the pattern of EMIs but it also serves an immense clarity in the process of transmission. The digital revolution has taken financial sectors to a significant height that everything has become more transparent than ever before. But in practice is anyone truly attaining the clarity on availing a loan? To know the facts on the proposal offered by the lenders, one should have relooked on how the rate of interest, tenure of the loan, terms, and conditions are fixed as per the lending policy for one’s own clarity and the same always matters.

Earlier banks were offering a rate of interest on the basis of internal benchmarks such as PLR, Base rate, and MCLR which were not directly controlled by RBI. It was well within the authority of the commercial banks to fix the lowest interest rate to buyers. But the changes in monetary policy by RBI often had an impact on banks internal benchmarks. Like when the REPO RATE decreased, there was a decrease in loan’s rate of interest, so the nature of increasing and decreasing interest rate also depended on the bank’s internal benchmarks subject to change in monetary policy. But the benefit of decreasing rate of interest was not being maintained uniformly in lowering or revising the interest rate benefit to all the borrowers but banks were always aggressive when on an increasing trend.

There were only a few banks that voluntarily let customers avail such benefits. Thus there were no such clarity and transparency by banks to borrowers in fixing the rate of interest for the loans.

Then, the new MCLR regime began w.e.f 1st April 2016. All the commercial banks were instructed to link the interest rate to MCLR. A panel by RBI on reviewing the MCLR implementation by lenders had instructed to link all the existing loans ( Fixed and Floating rate of interest ) to the present MCLR system in order to put clarity on the changes in monetary policy and transparency while fixing up the rate of the interest to the borrowers. The RBI committee also suggested considering rates to be linked to external benchmarks like Repo rate, treasury bills, etc. The purpose was to maintain clarity in fixing up the rate of interest to borrowers.

Rate of interest is quoted by banks as Base rate plus a spread. The spread is used over base rate benchmarks.

Spreads are quoted as per the creditworthiness of the borrower which remain fixed throughout the loan tenure but change depending on the further credit assessment of the borrower. So this is always advisable to be financially disciplined for a better credit score which would help to qualify for a loan with the best lower EMIs. Example of a spread goes like this, like if my credit score is good and I am eligible for a loan at a rate of interest 9% but I accepted the quoted proposal at 10% with same credit score then 1% is the yield over the benchmark benefited to the lender. So one should be more aware of the self credit score

Compare interest rates with all the lenders online. One can also have an inquiry and know the eligibility on the line. The benefit of online assessment is that it will protect the credit score as a soft inquiry. However, approaching directly to a lender considered as a hard inquiry and may impact directly reducing some points in the credit score.

Know your credit score. Before going for a home loan get your credit report in advance and know your score. A good credit score if score more than 750 is considered as good. If anything less than that improves your score by paying bills, other outstanding repayments, and installments in time. Better credit score will benefit you at a better rate

Look for a change if the existing lender has no clarity on the rate of interest and if the present rate of interest is low in the market. Approach the existing lender for a better rate if it does not work out then look for a change. Before changing one also must look into the remaining tenure, principal outstanding left, present interest rate and the low rate available with other lenders.

 Always opt for a change if the difference will be more than 50 basis points and may go ahead comparing the processing, stamp duty, and other fees. The existing borrowers whose rate of interest is still fixed with base rate should immediately transfer the loan to other banks who are offering MCLR based rate considering all the above factors.

Home Loans have become more transparent with MCLR
Home Loans have become  more transparent with MCLR 1

Compare home loan on line for a best interest rate, MCLR,

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