There is a lot of buzz in the news that the RBI has instructed all the banks to synchronise Base rate with MCLR by April 2018. It means all the home loan borrowers including pre-2016 borrower’s loan will be transferred to MCLR rate from the base interest rate. Blog: https://amritaagarwalblog.wordpress.com/2018/02/08/rbi-guidelines-on-mclr-2018/ Apply for Loan: https://financebuddha.com/home-loan Facebook :https://www.facebook.com/financebuddha Twitter:https://twitter.com/financebuddha

1. RBI Guidelines on
MCLR 2018

2. MCLR full form is- Marginal Cost of Lending Rate. The name itself
suggests that the rate of lending is marginal and below that rate
banks are not allowed to lend to any customer.

3. Recent announcement made on MCLR
The RBIs announcement of linking all existing base rate home loans to
MCLR with effect from 1st April 2018. It means that after two years of
introducing MCLR, now it has become mandatory.

4. A base rate on a home loan is reviewed quarterly whereas an
MCLR is reviewed monthly. Both of these two rates have different
ways of fixing it. Once the linking of the base rate and MCLR is
done.

5. In the January 2017, the MCLR of almost all the banks were reduced
by 80-90 basis points because of a low repo rate. A basis point is a
one-hundredth of one percentage point. But the base rate remained
unchanged for many banks.

6. A home loan interest rate is calculated by
MCLR (or Base Rate) + Spread. Let’s say the MCLR is 9% then the interest
rate will be 9%+ 0.25%( spread) = 9.25%.

7. Under the MCLR process, banks have to publish their MCLR rate at
least five times in a month. The declaration should be done overnight,
one month, three months, six months, one year, two years, and three
years rates each month.

8. Now RBI has made it necessary to allow base rate borrowers to switch
to MCLR. One can switch to MCLR with the same lender or the other
option is to go for a refinance. With a refinance, a borrower can
switch to the lender who is providing loans at MCLR.