A key component of a home loan is the rate of interest at which it is borrowed. As an applicant, when you apply for a home loan online, the available variety of home loan rates in India can be baffling.
In this article, we’ll explore the marginal cost of funds-based lending rate i.e., the MCLR rate for home loan that offers flexible interest rates based on the risk involved and the market trends. Here’s all you need to know about an MCLR home loan.
What is MCLR?
Marginal cost of funds-based lending rate (MCLR) rate for home loan is the internal benchmark interest rate at which an institution can lend money to a borrower. This was introduced by the Central Bank of India with effect from April 2016. Unlike the base rate system, which was used earlier, MCLR also takes the REPO rate and marginal cost of the lender into account for determining the interest rates.
For context, the REPO rate is the rate at which the RBI lends money to financial institutes. Thus, a decrease in REPO rate will also lower the MCLR. Other factors which will affect MCLR are marginal cost of funds and tenure premium. Let’s take a look MCLR home loans now.
Home loan at MCLR
A housing loan borrowed from a lender at MCLR is closely linked to the REPO rate and cost of funds. If there is a change in REPO rate, it will reflect in the MCLR rate for home loan. TheMCLR is subject to revision after every reset and is directly dependent on the internal interest rates of financial institutions. Under MCLR, interest rates are revised daily with a maximum reset period of one year. The MCLR rate for home loan also depends on the borrower’s lending risk. Factors such as your CIBIL score, property value, and tenure have a direct impact on the MCLR rate for home loan.
A floating interest rate on your home loan will be directly affected by MCLR. You also enjoy lower home loan interest rates with MCLR as opposed to fixed home loan interest rates.
What does MCLR mean for home loans?
MCLR home loan is charged at floating interest rates only. If you have opted for a fixed housing loan interest rate, you do not have to worry about any changes in your monthly instalments with changing market trends. However, an MCLR home loan will directly depend on such changes.
This new MCLR rate for home loan computing policy was introduced to improve transparency among the financial institutes. When the home loan was being charged under the base rate system, any cuts in the REPO rate were not passed down to the borrowers which have changed significantly with MCLR system.
You can apply for an MCLR home loan at Tata Capital to avail one of the most competitive home loan rates in India starting at just 9.25%. With the use of our free home loan eligibility calculating tool, you can also find out the most suitable plan for your housing needs. Visit our website to learn more!