The Reserve Bank of India has issued new guidelines for setting lending rate (on loans) by commercial banks under the name Marginal Cost of Funds based Lending Rate (MCLR). It will replace the existing base rate system from April 2016 onwards.
Base rate system was introduced by RBI in July 2010 to ensure that banks can not lend below a certain benchmark. Also, to ensure that the changes in interest rate policy is effectively transmitted to the bank customers.
However, policy transmission could not become very effective as banks adopted various methods in calculating their cost of funds. At present, the banks are slightly slow to change their interest rate in accordance with Repo Rate change by the RBI.
You might have observed that RBI has cut interest rates to the tune of 125 basis points in this fiscal year. But, this has not been effectively transmitted to lending rates offered by the banks. Banks have so far lowered their base rate by only 50-60 basis points.
( A term called as “Basis Points” is often used in monetary policy reviews. What is Basis Point? …. 1% is equivalent to 100 basis points)
Same is the case when interest rates are increased by the RBI. If RBI increases rates by say 100 basis points, banks increase their benchmark rates by say 50 basis points. So, the ‘base rate system’ has turned out to be not so effective method.
In this post let us understand – What is Marginal Cost of Lending Rate? Difference between MCLR and Base rate methods? How is MCLR calculated or determined? Is new MCLR system beneficial to borrowers & banks? What is the impact of MCLR on existing and new home loan buyers?
(You may like reading my post on – ‘What is CRR / SLR / Repo Rate / Reverse Repo Rate‘)
Latest update (06-Sep-2019) : RBI makes it mandatory for all Banks to link Loans to External Benchmark Rates. However, this is not applicable to NBFCs (like HDFC, LIC HFL etc.,). The existing borrowers will be given an option to port to new Lending rate. The interest rate under the loans linked to an external benchmark will be reset at least once in 3 months
How is MCLR calculated? (Components of MCLR calculation)
Let us first understand as to how banks make money or profit. The primary function of a bank is to lend money and to accept deposits from the public. The difference between advances and deposits is the income earned by the banks.
So, how is the base rate or Standard Lending Rate calculated by the banks? The main components of base rate system are;
- Cost of funds (interest rates offered by banks on deposits)
- Operating expenses to run the bank.
- Minimum Rate of return ie margin or profit
- Cost of maintaining CRR (Cash Reserve Ratio).
As you can see, the banks do not consider ‘repo rate’ in their calculations. They primarily depend on the composition of CASA (Current accounts & Savings Accounts) and deposits to calculate the lending rate. Most of the banks are currently following average cost of fund calculation. So, any cut or increase in rates (especially key rate like Repo Rate) by the RBI is not getting transmitted to the bank customers immediately.
(What is repo rate? – When we need money, we take loans from banks. And banks charge certain interest rate on these loans. This is called as cost of credit (the rate at which we borrow the money)
Similarly, when banks need money they approach RBI. The rate at which banks borrow money from the RBI by selling their surplus government securities to the central bank (RBI) is known as “Repo Rate.”)
As per the RBI’s new guidelines, it is mandatory for the banks to consider the repo rate while calculating MCLR with effective from 1st April, 2016. The new method — Marginal Cost of funds based Lending Rate (MCLR) will replace the present base rate system.
The main components of MCLR calculation are;
- Operating Expenses
- Cost of maintaining CRR
- Marginal Cost of funds
- After considering interest rates offered on savings / current / term deposit accounts.
- Based on cost of borrowings i.e., short term borrowing rate which is repo rate & also on long-term borrowing rates.
- Return on Net-worth
- Tenor Premium (an additional slab of interest over the base rate, based on the loan tenure & commitments).
The main differences between the two calculations are i) marginal cost of funds & ii) tenor premium. The marginal cost of funds will have high weightage while calculating MCLR. So, any change in key rates (increase or decrease) like repo rate brings changes in marginal cost of funds and hence the MCLR should also be changed by the banks immediately.
(In economics sense, marginal means the additional or changed situation. While calculating the lending rate, banks have to consider the changed cost conditions or the marginal cost conditions.)
RBI’s key guidelines on MCLR
- All loans sanctioned and credit limits renewed w.e.f April 1, 2016 will be priced based on the Marginal Cost of Funds based Lending Rate.
- MCLR will be a tenor-based benchmark instead of a single rate. This allows banks to more efficiently price loans at different tenors based on different MCLRs, according to their funding composition and strategies.
- Banks have to review and publish their MCLR of different maturities every month on a pre-announced date.
- The final lending rates offered by the banks will be based on by adding the ‘spread’ to the MCLR rate.
- Banks may specify interest reset dates on their floating rate loans. They will have the option to offer loans with reset dates linked either to the date of sanction of the loan/credit limits or to the date of review of MCLR.
- The periodicity of reset can be one year or lower.
- The MCLR prevailing on the day the loan is sanctioned will be applicable till the next reset date (irrespective of changes in the benchmark rates during the interim period). For example, if the bank has given you a one-year reset period in your loan agreement, and your base rate at the beginning of the year is say 10%, even if the interest rate comes to 9% in the middle of the year, you will continue at 10% till the reset date. Same will be the case even if the interest rate increases above 10%.
- Existing borrowers with loans linked to Base Rate can continue with base rate system till repayment of loan (maturity). An option to switch to new MCLR system will also be provided to the existing borrowers.
- Once a borrower of loan opts for MCLR, switching back to base rate system is not allowed.
- Loans covered by government schemes, where banks have to charge interest rates as per the scheme are exempted from being linked to MCLR.
- Like base rate, banks are not allowed to lend below MCLR, except for few categories like loans against deposits, loans to bank’s own employees.
- Personal loans, auto loans etc., will not be linked to MCLR.
- Fixed rate loans up to a tenor of 3 years will be brought under MCLR system. Fixed rate with tenor of more than 3 years will be exempt from MCLR regime, meaning banks will have discretion in pricing the product.
How MCLR Works? (Example)
For instance, for salaried individuals, ICICI Bank has set a floating rate home loan at one-year MCLR of 9.20% with a spread of 25 bps for loans of up to Rs.5 crore. So, the interest rate will be 9.45% (9.20% +0.25%). This interest rate is valid till 30th April, 2016 (as given in the bank’s website). ICICI Bank has decided to set one-year MCLR as the benchmark rate for their home loans.
Though the MCLR is reviewed monthly, your home loan will be reset every year automatically, depending on the agreement with the bank.
So, if you take a Rs.50-lakh home loan on 10th April,2016, your home loan interest rate would be 9.45% . You have to pay EMI installments at this rate of interest for the next 12 months.
Let’s say one-year MCLR gets revised to 9.% in April, 2017 and the spread remains the same then your home loan interest rate will be reset at 9.25% (MCLR of 9% plus spread of 25 bps).
How to Switch from Base Rate to MCLR?
This primarily involves two steps;
- If you would like to switch to MCLR system then you have to request your banker to link your loan rate with MCLR instead of Base Rate.
- Once your loan is linked with new MCLR rate, you can request your banker to reduce the quantum of ‘spread’. Your Banker may charge you one-time fee (conversion fee) for reduction in Spread. Henceforth, you will get the new Rate of Interest (ROI) which is linked with MCLR.
My Opinion
- If interest rate cycle is in a downward trend, MCLR can be beneficial to borrowers of loans like home loan buyers.
- But do remember that the interest rates may not remain low forever, when the trend changes the MCLR rate hike can be swift.
- If you are an existing home loan buyer and planning to repay your home loan in say next few years, you can consider switching to MCLR method (as of now the charges applicable to move to MCLR is not available, you have to account for these charges and then take final decision).
- If you are planning to buy a property through a home loan, you may take the loan under existing base rate before 31st Mar, 2016. Based on the prevailing economic factors, the RBI may not cut interest rates in the very near future, you may continue with base rate and anyways you have the option to move to MCLR at a later point of time, if RBI cuts rates.
- It is too early to say if the change in base rate will actually be completely passed on to consumers. Because, do remember that banks still have the option to set a ‘spread‘ on loans. Banks are free to determine the range of spread for a given category of borrower or type of loan. (For example, if the loan interest rate offered to you is 10.25% and the new base rate as per MCLR is say 10%, 0.25% is the spread)
- As far as banks are concerned, their margins might take a hit in the range of Rs 15,000 to Rs 22,000 crore assuming a 75 basis point decline (source – ICRA). Banks may lose when interest rates drop but will gain when rates increase. So, it all depends on how many instances of ‘rate cuts’ will happen in the future.
- MCLR is applicable for Banks only. Hence this is irrelevant to home loans offered by NBFCs (Non-Banking Financial Companies) like LIC Housing Finance, Dewan Housing (DHFL), HDFC, Indiabulls etc.,
Latest News (07-Aug-2019) : RBI cuts Repo Rate by 35 basis points to 5.4% from 5.75%. This is the fourth consecutive rate cut from RBI , after a rate cut in February, April & June of 2019. The reverse repo rate has been revised to 5.15%.
Latest News (06-June-2018) : RBI hikes Repo Rate by 25 bps to 6.25%; 1st Repo Rate hike since January 2014. RBI has also increased the reverse repo rate to 6%.
Latest News (02-March-2018) : SBI Hikes Lending Rate for first Time Since April 2016. SBI has raised the one-year MCLR rate to 8.15 % from current 7.95 %.
Latest update (02-Aug-2017) : RBI cuts Repo rate by 25 basis points. So, latest Repo rate is 6%. Reverse Repo rate has been cut by 0.25% to 5.75%.
Latest MCLR Rate Cuts (02-Jan-2017) : State Bank of India (SBI) has made a deep 0.90% cut in its marginal cost of funds based lending rate (MCLR) across all maturities. Following this cut, home, auto, personal and other loans will become cheaper. With this cut, the one-year MCLR is at 8 per cent against 8.9 per cent. The new loans rates are effective from 1st January, 2017.
Latest News (04-October-2016) : RBI cuts Repo Rate by 25 basis points to 6.25% and keeps CRR unchanged. ICICI Bank cuts its MCLR based lending rate by 5 basis points and the bank’s new one-year MCLR is at 9.05% with effective from 1st October, 2016.
Latest News (02-June-2016) : ICICI Bank has reduced its latest MCLR rate by 5 Basis points to 9.15% from 9.20% with effective from 1st June, 2016.
Do you believe that this new base rate system will be beneficial to loan borrowers? Kindly share your views on Marginal Cost of Funds based Lending Rate?
Continue reading :
- RBI cuts Repo rate : Impact on your HOME LOAN
- What is Repo Linked Lending Rate (RLLR)? Will it be beneficial to the Borrowers? | Definition, components & review
- What if the RBI hikes interest rates? | RBI’s Rate hike – Its Impact on the Economy & Personal Finances
- Important Macro Economic Indicators you need to track as an Investor!
(Image courtesy of Stuart Miles at FreeDigitalPhotos.net)
My bank did not notify me of MCLR and I have been continuing to pay EMI based on base rate. I got to know of MCLR only recently i.e. Dec 2020.
Since the bank should have given me option of MCLR can I ask for a refund of the difference between base rate and MCLR based EMI?
Of course now its no longer MCLR and the rate has has moved to repo rate while I continue to pay at base rate.
I believe banks should be trustworthy and resort to such tactics but is there even a forum to complain and get some relief?
My loan ends in Oct this year and I fear I have been overpaying since 2016 so thats quite a sum
Dear Ray,
As it is an optional thing, it may be in-vain now to raise the dispute with the banker.
Anyway, you may just check with them if this is possible at all.
Related article : What is Repo Linked Lending Rate (RLLR)? Will it be beneficial to the Borrowers? | Definition, components & review
I about to take educational loan.
Total amount 4LAKH
give rate of interest as 8.95
currently the bank has mclr as 8.5
my doubt is if every month mclr changes,the interest what i have to pay will continue to vary or the initial stated rate of interest will be constant for my loan.
my tenure is given as 15 years.
if the mclr go up then my interest will also to be extra paied to the bank?
is this benificiary or base rate is good over mclr ?
Dear AKSHAY,
Your MCLR rate will change based on the RESET clause, in most of the cases it is 1 year.
You may check this with your lender.
THANK YOU SIR
Hi,
I am planning to transfer my existing Home loan to SBI at MCLR. My total balance loan tenure would be 15 yrs. The SBI representative told me that the prevailing margin reset tenure is 1 year. He also assured me after first one year, whenever the interest rate changes, it will effect immediately on my account.
But my assumption is, every time there is a change in interest rate, I have to wait for one year (or the next banking year) to effect in my loan. Could you please clarify?
Thanks.
Dear GP,
MCLR is more transparent, but your banker may or may not reset the rate immediately after an interest rate change by the RBI.
Hi Sreekanth,
I have taken a home loan from SBI in Aug 2015 at 9.3% base rate but now my current base rate is 9.1% . I am currently out of India. When checked with our branch manager, he said I need to visit branch to change from base rate to MCLR and can’t be done online. Is there any chance that base rate would be adjusted in next couple of months?
Regards,
Vamshi
Dear Vamshi ..Tough to predict on specific bank’s base rate, that too for short-term basis.
Hi sir, I was not aware of MCLR facility given by bankers. I have home loan in SBH since 5 years, Only I came to know about MCLR by one of my friend recently. By that time SBH merged into SBI. When I approached bank, they charged 10,000/- of processing fee. I was not informed by the bank. before merging into SBI, SBH charged only 1000/-. Is their any solution for getting back amount. Can I approach grievance. Kindly help me. thanks.
This has happened to many. All the banks are charging minimal amount, with a block on maximum, whereas the SBI has kept a minimum of Rs.10,000/- irrespective of the loan amount. Axis Bank maximum Rs.5000/-, Indian Bank Maximum Rs.10,000/- , Canara Bank 0.50% of loan or Rs.25,000/- whichever is LOWER. Different banks are following different yards. I have referred earlier in this forum. Not resolved till date. You can write to SBI first and if no response is received you can take up with Banking Ombudsman of the jurisdiction. Long drawn process but some one has to tie the bell to cat. The main reason for all this is RBI , being regulator, has not given any guidelines/instructions while introducing MCLR system, regaridng conversion fees.
Dear Rayadurg Ji..Thanks for sharing your views and suggestion!
Dear Uma .. If they have mentioned about this fee in the agreement then you can’t do much now.
Sir, They did not mentioned any fee regarding MCLR.
Dear Sreekanth,
First of all thanks sorting out the confusion and complication about MCLR loan system.
I had taken loan of 27.5 Lacs under maxgain account under base rate system in march 2016. Now loan interest rate is 9.35%.
Current MCLR offering from SBI is 8.8%, so it means Base rate systems interest rate would also be reduced…. Am I right here?.
So if I want to avail the reduced interest rate offer from SBI with continuing the Base Rate system, is it possible?
I mean to say is there a option to apply the reduced rate of interest with or without converting the your interest rate system (Base/MCLR)?
Your advice will really help me to take further decision.
Dear Vinod,
1 – May or may not be reduced, depends on your banker’s policies and guidelines.
2 – You can negotiate with your banker on this (regarding rate reduction), it can be possible. I have seen this happening, especially with individuals who have good Credit Score.
Dear Sandeep,
Thanks for the better clarity. I would like to seek some suggestion from you. I had taken loan of 19 Lacs under maxgain account. Now loan interest rate is 9.25%. I just taken loan in 2015.
1. Is it advisable to convert into MCLR?
2. What would be the benefit if I still continue with base rate interest?
Dear Mani ..What is the MCLR rate offered by your banker to you?
Dear Sreekanth,
It is 8.8%, since mine is max gain account.
Dear Mani ..You may switch to MCLR if you have no plans to pay off your loan in near future..
Hi.. I need a suggestion.
I had loan of 15 lacks in central bank of India which is mortgage loan.and taken in 2011.
Switching to MCLR is best or waste?
Dear Shiva ..How many years more to go to clear the loan? What is your current RoI and offered MCLR rate of interest?
I have availed home loan of Rs.90 lacs from SBI at 9.25 %. Now the bank has offered MCLR liked int., @ 8.95% pa.
They are also charging conversion fee of Rs.30,00o/- appx.,
Please clarify :
1) whether it is worth accepting the offer.
2) why the conversion fee is to be paid as it is a change of system introduced by RBI and offered to public. What is the justification for conversion fee. The fee varies from banks to banks like Axis Bank it is flat Rs.5,000/- (+ST) per loan,
in Indian Bank it is 0.50% with maximum of Rs.10,000/- whereas in SBI it is 0.46% with minimum Rs.10,000/-, in Canara Bank it is 0.50% of outstanding or Rs.25,000/- whichever is lower. What is the RBI guidelines on conversion fees.
3) The reduction in future EMI is appx., Rs.2000/- pm and conversion fee of Rs.30000/- will amount paying EMI (say outflow) for next 15 months. In the real sense the benefit is not passed on immediately.
Thanks
W R Rayadurg
Dear Rayadurg,
I could not find RBI’s guidelines on minimum or maximum switch fee that a bank/lender can charge..
What is the remaining tenure on your homeloan? Are you planning to prepay it aggressively?
Remaining tenure is 28 years. We are planning to close it in 10 years.
Waiting for your clarification whether banks are justified in charging conversion fees, when there is no guidelines from RBI ?
Dear Rayadurg Ji,
I believe there will be a cap set by RBI w.r.t maximum conversion fees that is allowed..have to search for the notification/circular.
MCLR is a more transparent system. Advisable to switch to the new rate basis.
Thanks. However will wait for your clear and authoritative information
Dear Sreekanth,
Your website is very very useful and i have learn t lot of knowledge in loans.
I have one question,
I got the housing loan from BOI at july 2016 with already MCLR interest rate 9.7% for 20 years.
But now the rate was reduced to 8.7%. How to avail the 8.7% interest to my housing loan account.
Note: My first EMI will start from April 2017 (Rs.19177). Still i have paid interest only.
Shall i reduce the interest and How can i change it?
Thanks,
Mohan
Dear Mohanraj ..You may have to wait till the RESET period to avail lower/prevailing rate (at that time).
Generally reset period can be 1 year. Kindly check with your bank/lender.
Hi, i have taken home loan in march 2015 from lic housing for 72 L , currently balance is 69 L and rate if interest is 9.4%.
1. Should i transfer loan my loan to some other bank?
2. should i go with SBI maxi gain – i earn some extra money in between
3. prepay can only happen after 4-5 yrs from now
4. should i go with MCLR
Dear Vikasn,
If you can get a deal where the new loan rate (MCLR) is at least .5 to 1% less than what you are paying for..you may opt for the switch..
dear sir
can u explain how does a bank calculate his mclr with practical example.
Thanks
Dear Deepak ..I do not have that much expertise to quote an example here..You may plz google for it..
You may have a look at this Youtube video..
hi srikanth
Need your advice on switching home loan from base rate to MCLR !
SBI
current rate 9.25% ( 9.1 % + 0.15 Spread) base rate loan.
outstanding – 30 lakhs
tenure – 17 years remaining.
Current MCL R – 8% + 0.65 % spread – 8.65% . will my MCLR rate will be 8.65 or 8.65+015 % = 8.8 %
If 8.8 % MCLR as worst case, considering my case is it advisable to switch to MCLR.
Dear Sandeep,
It will be MCLR + Spread ie 8.65%.
MCLR is much more transparent system and if you have no plans to repay your loan soon, you may switch to MCLR basis.
I like your information which you share with us , I also read this similar tutorial from another
platform I think from this post user’s can more details about Get Bank Loans
Hi Sreekanth,
I have availed Housing Loan from SBI in March’15 for Rs.35 lakhs with 30 years tenure under Base Rate of 9.4%. The current outstanding is 34 lakhs. Is it advisable to convert it into MCLR now, as I dont have any plans to preclose in near future (may be for next 5 years)
They are charging around 20K as conversion Charges. Please advise.
Dear Sathish ..If the difference between the Rate of interests is at least 0.75% to 1%, you may go ahead and switch to MCLR.
Dear Sreekanth,
Yes, The difference is 0.8%. Thanks for your prompt response and suggestion.
Thanks
Sathish.R
Hi Sir,
I have take Home loan (SBI) of amount 48,00,000-00.(sanctioned in April 2014). [based on Base Rate]
Current rate of interest: 9.4%
Current Outstanding amt: 44,00,000-00
I am planning to switch from Base rate to MCLR by paying around 15,000-00
Could you please suggest on this?
Regards,
Chandra Reddy
Dear Chandra ..You may kindly go ahead and switch to MCLR.
Thank you Sreekanth, Now I switched to MCLR(8.65%)
Hello Sir
I have taken a housing loan during the Month July 2013 for INR 14,40,000 from Bank Of India on the base of floating rate basis, with loan period in 298 Months. Current ledger balance is Rs .12,38,248. Already 3 years 8 Months has left and I paid EMI at a rate of INR 13380 till the date as monthly installment amount . I have further service /employment for another 25 years. Right now floating is 9.65% and frankly speaking BOI current MCLR is not aware as far as I am concerned.
Is it worth to switch from base floating rate to MCLR ?Shall I get any kind of financial benefit out of it if I do switch to MCLR now??? Do the bank charge me for that???? if so, how much it would be ???? Does the interest rates remain for ever from the date of switching to MCLR.
Pl. advise in the respect
Deepukumar Thrissur
Dear Deepukumar,
Kindly check with your banker about the latest MCLR rate and the Spread that is applicable in your case.
After choosing MCLR, you can not come back to old base rate system. The RoI on your loan will be reset based on the Reset clause and the prevailing MCLR rate.
The latest MCLR rate offered by BoI as on 07-March-2017 is 8.5% (1 Year rate). Kindly visit this page to know abt BoI’s latest rates.
Thanks for your valuable response and suggestion.
Hello Srikanth
I have housing loan balance of 10 lacs in BOI and currently on base floating rate basis, with loan tenure of 10 years.
Already 3 years has gone and my employment period is maximum of 5 years. A;so I have plan to repay some amount and try to close earlier not to wait for full loan period.
I received communication from bank if I opt for MCLR switch there will 0.2% processing charge and one time of Rs.10000/-
Now floating is 9.6% and BOI current MCLR is 8.7%
Is it worth to switch from base floating rate to MCLR ?. Any benefit if I do pre-payment/pre closure in next 3 years.
Pl. advise
Venkatesan
Dear Venkatesan,
Based on your case points, may be it is wiser to opt for 8.7%, as interest rate may hover around this rate for next 1 to 2 years.
Hi, I had a 10 Lac Home loan (ICICI / started Yr 2003 / 20 yrs) which i transferred to HDFC Ltd in 2013 (7.3 Lacs @ 10.5% Fixed / 15 yrs) since the rates had gone up as high as 14% for me.. The current O/S is 6.75 Lacs with 134 EMIs pending. Will there be any benefit in transferring it to Axis bank @ 8.5% ROI for 120 months (no processing / transfer or other charges)? Or is it better to continue keeping it at 10.5% fixed with HDFC and prepay by paying 15-20k additional every year for the future years and close it?
Dear Jijo,
There will be lot of paper/documentation work..
If you have plans to prepay it, you may continue with HDFC only.
Read : Home loan transfer Calculator (Base rate to MCLR)
i had taken home loan in 2012 from idbi bank of Rs 1150000/- with floating interest rate @ 10.75% for the tenure of 20 years, now running floating interest rates of bank is 9.5%.
Now bank offer me the mclr rate 0f 8.55% for 3 month reset period scheme.
Q1) is it beneficial for me for switch over from base rate to mclr. &
Q2) is it any option for me to choose the mclr reset period(ie. 3 month )
please clarify.
Dear nitin,
a) You may switch.
b) I believe you can check out with your banker about the reset clause. The shorter the reset period, the more probability of your RoI changing as per prevailing MCLR rates.
HELLO, I HAVE TAKEN HOME LOAN FROM HDFC OF 35,00,000/- . present interest rate is 9.05 % (based on base rate method) . And axis bank offer me the home loan at interest rate of 8.50 % (based on 6 month MCLR), without any processing fees .
What is advisable ? . And also hdfc limited offer me interest rate of 8.95 % after payment of 6500/- rs.
Please advised me, what will benefit in long term .
Dear Bhavesh ..May I know your loan remaining tenure?
It may be a better choice to negotiate your current lender than switching to new lender, there can be lot of costs involved + documentation work.
The Loan is new which has tenure of 20 year, and there are not any processing charges involved and my home agreement are still not done. Home is under contraction condition. HDFC offer me besed on RPLR.
Dear Bhavesh,
You may consider Axis offer. But do note that if reset period is 6 months, your Rate of interest on loan may change every 6 months (based on prevailing MCLR rates + spread).
I HAD TAKEN EDUCATIONAL LOAN FROM SBI BANK IN 2009 CAN IT BE CONVERTED TO MCLR ???
Dear MUKESHKUMAR,
Some banks like SBI have started to link Personal loans, auto loans and educational loans also to MCLR system (only floating rate loans).
So, kindly check with your banker.
Sir,
I have a Home loan in canara bank for 19.2 lakh with lon tenure of 15 years from Mar’15. Curretn o/s is 16.78 laks. I have received a letter from bank for changeover to MCLR type intrest rate, is it advantages to switch over to MCLR. I have almost 10 years of balance tenure. please advise.
Dear Pradeep..In case, you dont have plans to pre-close your loan quickly, you may consider the switch.
SIR,
I have taken home loan on 20th september 2016. Am I eligible for Swith over of MCLR Rate.
Dear Sandhya ..Have you taken it from a bank or Non-banking finance company?
All loans issued by banks after April 2-16 are with MCLR rate only.
Hi,
I took a home loan transfer to SBI and the case was filed into SBI on 25-March 2016.
However I took the first disbursement on 2-April 2016.
My bank has put me on Base rate, I think that since the date of disbursement was after 1-April-2016, shouldn’t my interest rate be based on MCLR..??
Please advise what should be the basis of my home loan calculation..i,e, it should be based on Base-rate or MCLR?
Best Regards,
Naveen
Dear Naveen,
I believe that your application has been processed by your banker in previous FY, they would have linked your home loan to base rate.
You have the option to switch to MCLR system (if required) by paying applicable fees..kindly check with your banker.
Hi
I have opted for MCLR and can you please tell me whether it will be applicable retrospectively.
Thanks
Ganesh
Dear Ganesh..I am unable to understand your query …???
Hi, I have an home loan of Rs 40,00,000 for 20 years (starting Mar 2016) from Oriental Bank of Commerce based on Base Rate (which is 9.70% at the the moment).
Currently the Home Loan lending rate on MCLR basis for OBC bank is 8.6%.
Should i do a switchover from base rate to MCLR?
Dear Gaurav..As this is fresh loan, you may consider switching..
But do calculate the cost of switching..
MY LOAN IN BANK OF BARODA 1265000 WITH 9.60 INTEREST RATE TERM 300 MONTH
IF MY LOAN TRANSFER IN MCLR RATE V/S BASE RATE
CAN IT POSSIBLE MCLR RATE INCRESE THEN BASE RATE IN FUTURE
HITESH M SADALIYA
Dear Hitesh..It depends on the Spread that your bank is quoting for you..
Hi Sreekanth, thanks for for your blog that continues to be as helpful as always.
I have a Maxgain loan for 1.1 Cr and am on a rate of 9.75%. The bank has offered me the MLCR rate of 8.95% with a switch fee of 0.575% of drawing power Rs. 10091132 in the account i.e Rs.58024.
I am planning to prepay part of the loan- approx 20 lakhs.
I have two questions:
1. If i do the prepayment does the drawing power reduce and therefore the switch fee as well?
2. In your replies you recommend waiting for the next financial year before switching- i presume you mean from march 2017- an i know the reason for this.
Any other suggestions in this regard would also be welcome.
Thanks and Regards
Dear George,
1 – Yes, as the switch fee is based on the outstanding balance.
2 – Budget rules & RBI’s policy review in Feb etc have to be tracked and see if there is any impact on lending rates..
Dear Sreekanth
I have taken a Home loan for Rs.650000/- from DHFL for 15 years tenure. Paying Monthly Installment of Rs.7642/-.
Is it better to switch to other Home Loan provider with MCLR option or stick for the same ?
Dear Sumit,
What is the remaining loan tenure?
Generally, the rate of interest offered by NBFCs is higher than the rates offered by Bankers. So, you may plan for the switch sometime beginning of the next Financial year.
Dear Sreekanth,
I have taken loan from SBI , My loan amount in 2419000 and Account is max gain. I am paying 21000 as EMI .
My Loan start date is sep 2015. After current rate change my interest rate is changes from 9.35 to 9.3.
For converting to MCLR they are saying pay Rs 12000.After that rate will be 8.8
What should i do?Should i go for MCLR or continue with my interest rate?
Dear Raviraj,
What is the remaining tenure on your loan? Are you planning to Pre-pay it in the very near future?
Dear Sreekanth,
My loan period in 30 years and i am not planning to Pre- Pay my loans in next 3-4 years.
Dear Raviraj ..You may think of switching to MCLR basis may be in the beginning of the next Fin year.
Hi Sreekanth,
currently my SBI Home Loan is linked to MCLR and the Interest rate applicable to me is 9.35%, I am trying to get it reduced as current SBI Home Loan interest rates are 8.65% from January 2017. But not able to do so. SBI is not ready to reduce the rate as my HL is taken on Sep-2016.
Can you explain me the process.
Dear Shirish,
Kindly check your home loan Reset Period clause.
Banks such as SBI and ICICI Bank Ltd have set one-year MCLR as the benchmark for home loans.
Though the MCLR is reviewed monthly, your home loan will be reset every year automatically, depending on the agreement with the bank.
Hii Sir
currently my SBI Home Loan is linked to MCLR and the Interest rate applicable to me is 9.35%, I am trying to get it reduced as current SBI Home Loan interest rates are 8.65% from January 2017. But not able to do so. SBI is not ready to reduce the rate as my HL is taken on Sep-2016 and my loan reset period is 1 year.
Do i have any ways/option to get a benefit of 8.65% immediately (from feb onwards)
Dear Shiva,
No, it can be based on the Reset period clause only.
HI Sir,
I have another doubt,person who is already in MCLR+spread, after 1 year mclr will be based on rate at that time, but what about spread? currently SBI has increased spread from 0.25 to 0.65 so next reset time , will spread also change for exiting costumer?
Dear Pavan,
The Spread usually remains constant through the loan tenure.
Kindly check the Terms & clauses in your home loan agreement.
Hi Sreekanth,
Hope you are doing well!!
I have a home loan in ICICI bank. It has been sanctioned on 13th May, 2016. I think the loan is linked with Base rate not MCLR method; since it is mentioned as FRR/PLR in the loan details. I opted for Fixed interest 9.40% for first 10 years in 12 years entire tenure. Could you please let me know what is FRR/PLR, Does it base rate or MCLR? I would like to switch the loan to MCLR. I’m not sure how to move forward; since the interest type is fixed. But, in the ICICI website it has mentioned that all the base rate customers can switch to MCLR without any charges. I don’t know how the loan got sanctioned with base rate in May, 2016 whereas it should be MCLR. Please guide me on this. Does it possible to switch to MCLR? Thank you!!
Regards,
Ravi.
Dear Ravi,
Kindly note that Fixed Rate home loans, personal loans, auto loans etc., will not be linked to MCLR.
Did you take loan from ICICI bank or ICICI home finance?
FRR / PLR – stands for Floating rate reference / Prime lending rate.
“If your loan is from ICICI Home Finance Company Ltd, the new base rate will not be applicable. Your loan will continue to be on ICICI Home PLR (IHPLR). The base rate concept / norms are currently applicable to Banks only and not to housing finance companies.”
Hi Sreekanth,
I just got the confirmation email from ICICI. They told that my Home Loan is under MCLR method. Also, MCLR have both fixed an floating interest rate options. Does this information is correct? Please suggest!!
In the meanwhile, I will check whether the loan is from ICICI bank or ICICI home finance.
Regards,
Ravi.
Dear Ravi,
Even I have got an update;
Fixed rate loans up to a tenor of 3 years are linked to MCLR. Whereas, Fixed rate with tenor of more than 3 years will be exempt from MCLR regime i.e. banks will have discretion in pricing the product.
So, your banker might be right.
Hi sreekanth,
I am having housing loan of 9L in SBI on floating interest rate (Base Rate) of 9.5%. and remaining tenure of payment is 100 months. Is it advisable to switch over to MCLR rate by paying switchover charges?
Dear Ram..You need to do the calculations and take decision.
Reduction in interest payment & tax benefit Vs fee payable towards the switch.
Hi Sreekanth,
I have opted for a Max Gain loan of Rs 43,15,550.00. I have parked Rs 8,70,600.00 in the Max Gain account as surplus fund which saves interest for me. Total loan tenure was 180 months. I have already paid 17 EMI’s. So, i have 163 EMI’s pending. Current interest rate is 9.25%. I have not prepaid the loan as i get same advantage by parking the money in Max Gain account i.e. save interest on the parked amount. My target is close the loan in another 5-6 years.
So, what will be the interest rate charged for me if i convert it to MCLR with a female co-nominee? Does it sound a good idea to convert my loan to MCLR after you go through my details above? And, i have heard from few people that if a Max Gain account is converted to MCLR, then it looses the benefits of a Max Gain account, that putting extra money in loan account and withdrawing that whenever required. Is it true? Please give in your suggestions. Thanks!
Dear Tikon,
I dont think the features of Max gain account will be withdrawn if one switches to MCLR system.
For this switch, kindly note that SBI charges around 0.5 to 1% on outstanding loan amount as fee.
So, try to do calculations and compare the fee Vs EMI saved (assuming new mclr rate + spread).
You need to check with your banker about the applicable new rate to you.
In case you have very aggressive plans to close the home loan in near future, switching can be ignored.
Dear Srikanth,
Please tell me is the charge of 0.56% by SBI for switch over from the existing Base Rate to MCLR exempted/discounted for Defence personnel. I shall be grateful if an early reply is given.
Thanks.
Dear Rajendra..I tried finding out if there is any such exempt, but could not find any such info on SBI portal.