Existing borrowers may not feel the positive impact of the MCLR coming down immediately as the MCLR linked home loan has a reset-period which is generally one year from the date of commencement of the loan.
State Bank of India (SBI) has cut its Marginal Cost of Funds based Lending Rate (MCLR) by 5 basis points across all tenors with 1 Year MCLR coming down from 8.45 per cent per annum to 8.40 per cent per annum with effect from 10th July 2019. As a result, interest rates on all SBI home loans linked to MCLR including home loans will stand reduced by 5 bps. The previous cut was effective May 10, 2019 and was by an equal margin. Since April, the MCLR is down by 20 basis points for the SBI. Currently, the effective SBI home loan interest rate is between 8.5 per cent and 9.15 per cent. With MCLR coming down, the interest burden on loans including home loans comes down, with other factors remaining constant. While a lower MCLR will make the home loan cheaper, effectively the new home loan taker will stand to benefit immediately.
The actual home loan interest rate for someone looking for SBI home loan will primarily depend on the Amount of loan, gender of the applicant, Loan-to-value ratio, Salaried or non-salaried, and Mark-up on the loan.
Existing borrowers may not feel the positive impact of the MCLR coming down immediately. MCLR linked home loan has a reset-period which is generally one year from the date of commencement of the loan. So, if someone has taken a loan in July 2018, the reset of home loan interest rate will happen according to MCLR of July 2019.
In the case of SBI, the one-year MCLR in July 2018 was 8.25 per cent, while in July 2019 it stands at 8.4 per cent. It means the existing borrowers who had taken a loan from SBI in July 2018 will not get the benefit of the recent MCLR cut immediately. In fact, the EMI for them will show an increase inspite of the fact that the MCLR has come down in July 2019. Alternatively, one may increase the tenure of the loan if the EMI is to be kept constant.
This is true with all banks and all home loans linked to the bank’s MCLR. The immediate impact of a repo rate cut by the RBI or MCLR being reduced by the banks may not be there. In the calendar year 2019, the RBI has cut the repo rate by 0.75 per cent while the transmission by the banks to the borrowers is in the range of 0.10 to .30 per cent.
Ideally, one should not just keep paying the EMI but also make funds available for prepaying the home loan as early as possible. After all, owning your home with your own equity ( and not debt) is what makes your home sweet home.