Marginal Cost of Funds based Lending Rate or MCLR rate is a guideline put forth by the Reserve Bank of India that forbids financial institutions to set their lending rates below the stipulated benchmark.
Prior to this, there was a base rate which RBI sets as a minimum rate of lending funds to borrowers by lenders. While MCLR rate is determined based on the latest cost of fund, base rate takes the average cost of fund.
Individuals who have availed a housing loan before 1st April 2016 are usually recommended to switch their existing credit from base rate to MCLR. However, they must assess its viability before shifting.
Should you shift to MCLR rate?
The Central Bank introduced the Marginal Cost of Funds based Lending Rate aiming to pass on the benefits of repo rate cuts to end-consumers. Hence, home loans based on MCLR rates are more transparent, convenient and are offered against nominal rates of interest. You can shift your existing housing loan after assessing the following points –
- Savings on interest – The interest savings after initiating the transfer must be substantial. Make sure you enquire what is MCLR currently for precise assessment.
- Refinancing benefits – You can opt for a balance transfer facility, where you shift your existing home loan to a new lender offering MCLR, thereby lower interest rates. Additionally, with balance transfer, other benefits like top-up loans are also available.
Many home loan borrowers across India have already benefitted from this shift. Ensure to know what is MCLR rate currently, assess the benefits, and enjoy reduced rates on your credit.
Read Also: What Is MCLR And How Does It Affect Home Buyers?
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