Going by the mandate issued by the Reserve Bank of India, home loans will become cheaper, thereby directly benefiting the buyers. Effective from April 1, 2016, the Reserve Bank has brought in a change in how banks calculate the lending rates in case of a home loan.
The New Formula Benchmark
The Marginal Cost of Lending Rate (MCLR) is the newbenchmark where the rate will be calculated on the basis of ‘marginal cost of funds’. Although it will alter every month based on the changing cost of new deposits, once a loan is approved the rates for the buyer will be reset after a maximum of one year. ‘The Base Rate’ was the earlier benchmark. SBI, HDFC Bank and ICICI Bank have announced MCLR for one year at 9.2%.
The Effect
Owing to the new formula, banks cannot revise the rates whenever they want. The buyers will benefit as banks have to calculate their cost of funds and any difference in that has to be passed on to the money borrower by altering their benchmark.
Thanks to the MCLR, home loan borrowers need not wait for the average cost of deposits to slide. As MCLR will be revised every month based on the current costs of funds, the borrowers will get loans based on the rates in that month which won’t change for a year until it is reset.
Even while, MCLR will be benchmark rate for new home loan borrowers, the existing borrowers will continue with the base rate or can shift to MCLR based on mutually agreed terms with the bank.
Industry Quote
Manju Yagnik, Vice Chairperson, Nahar Group
This will create positive sentiments and spearhead growth for the realty sector, bringing some respite to customers with home loans during the upcoming festival of Akshayatritiya. Happy times to continue for the home loan seekers.
The real estate sector is going through a makeover and we welcome any sops given by government at this stage that will help in propelling the sector. This will also give a thrust to government’s ‘Housing for all’ initiative that has potential in job creation, improve social infrastructure and give a boost to the Indian economy as a whole.
