On 1st April 2016, the Reserve Bank of India (RBI) cut back the Repo Rate (the rate at which different banks borrow from the RBI) to 25 bps or basis points. This means that the lending rates of banks would reduce too, which can be beneficial for people looking to take out a Home Loan.
However, the repo rate cut as well as the introduction of MCLR, doesn’t affect all types of interest rates.
In case of Home Loans, only those Home Loans that are calculated based on floating interest rates, will be affected, especially if you are a new borrower.
If you are an existing borrower, your rate of interest on Home Loan will remain unchanged. However, even then there are a few options available to you once the banks start rolling out the benefits of changed repo rates as well as the MCLR imposition.
Here are a few things to keep in mind for making the most of the repo rate cut and streamlining your Home Loan. All of these can not only speed up the process of you repaying your loan, it can also ensure that any future loans that you apply for are easier and smoother than ever before.
1. Lowered Interest Rates
Many banks have not yet transferred the benefits to the consumers. But the customers who have taken floating interest after 1st April, your Home Loan fees and charges will be based on the revised MCLR basis.
If you are an existing consumer, you can also ask your lender to negotiate the interest rates based on the new MCLR rates.
2. Foreclosure of Existing Home Loan Accounts
If you have been one of those existing borrowers who have paying Home Loan fees and charges on higher interest rates, one of the options you can choose to make use of the lowering interest rate is to pre-pay or at least partially pay of your Home Loan.
Since your second Home Loan eligibility depends of your credit score, you can make use of MCLR by ensuring that your EMI is paid so that you can go for a second loan on the changed interest rates.
However, if this option is not available with your current lender, you can also consider switching your Home Loan to a new lender who is currently using the altered rates.
3. Switching Over
This is a pretty feasible option if your Home Loan fees and charges remain unchanged, especially if your bank is offering Home Loan to new consumers at 8.5% but you have been paying the interest at 9% despite the 0.50% interest rate change.
A switch over can help you enjoy the benefits of an altered interest rate throughout the course of your repayment. .
Therefore, your Home Loan eligibility comes into play when you want to apply for a new Home Loan in case of the rate cuts and application of MCLR by the banks. This is because your Home Loan Fees and Charges are revised to conform to the new format.
Keeping the above points in mind can definitely help you keep up with the changing market scenario better!