Home Loans To Get Cheaper As Banks Start Lowering Rates
State Bank of India reduced its marginal cost of lending rate (MCLR) by five basis points across all tenors for the second time in a month bringing down the one-year MCLR to 8.45 per cent per annum. The new rates have been brought into effect from May 10. For home loans of up to Rs 30 lakh, SBI had lowered the rates by 10 bps, between 8.60-8.90 per cent, from 8.70-9 per cent earlier.
Earlier in April, LIC-owned IDBI Bank had reduced rates by five basis points (bps). The bank's one-year MCLR now stands at nine per cent while six-month and two-year rate now stands at 8.60 per cent and 9.25 per cent, respectively. IDBI Bank had reduced its one-month lending rate by 10 basis points to 8.15 per cent. The reduced rates will come into effect from April 12.
Bank of Maharashtra (BoM) had also lowered its loan prices by five bps on loan tenors of one year and above, while Indian Overseas Bank (IOB) and SBI followed suit and reduced rates by same quantum in April.
The move by the banks came after the Reserve Bank of India (RBI) reduced repo rate, the rate at which it lends money to scheduled banks, to six per cent. In the past four months, the central bank has reduced the repo rate by 50 bps, and it has been nudging banks to pass on the benefits of reduced rates to customers.
Where do rates stand now?
After the reduction, the IOB’s one-year MCLR rate now stands at 8.65 per cent, from 8.70 per cent. Similarly, BoM’s one-year MCLR rate stands at 8.70 per cent, from 8.75 per cent.
For the uninitiated, MCLR is the benchmark lending rate at which banks in India price their loans. The new lending benchmark came into effect from April 1 last year, and has replaced the base rate system.
How does the reduction impact borrowers?
Apart from new borrowers, existing borrowers who have opted for a floating rate interest rate can reap the benefit of this reduction. Do note here that, you will have to approach your bank and ask them to re-adjust the rates for you; this is something banks typically do not do on their own.
A reduction of this scale would result in loan repayment tenures getting slightly shorter for existing borrowers. It has to be noted that banks generally adjust the repayment tenure and not the EMI (equated monthly instalment) amount while implementing interest rates cuts. For instance, loan-repayment tenure of 25 years may now come down to about 23 years.
Also read: Things You Need To Know About Interest Rate