If you are complaining that your bank is not reducing the home loan interest rates, there is good news for you.
The Reserve Bank has mandated that new floating rate loans disbursed from October 1, 2019 will now be linked to an external benchmark. Home loans and car loans are generally floating rate loans.
Let us know how this new rule will benefit you.
How is home loan interest rate calculated?
There are two parts to your home loan interest rate.
- Benchmark: Like base rate, MCLR, benchmark interest rates keep changing.
- Spread: It depends on your employment, loan repayment capacity, credit score etc. The spread generally stays the same throughout the tenure of your loan.
Your interest rate will be benchmark + spread
Suppose the current benchmark is 8% and your loan spread is 1.5%, then the interest rate on your loan would be 9.5% per annum.
If the benchmark increases to 9% after some time, the interest rate on your loan will increase to 9%+1.5%=10.5%.
If the benchmark drops to 7%, your loan interest rate will drop to 7%+1.5% = 8.5%.
Every bank calculates the benchmark interest rate according to a formula.
What’s the problem?
It has been observed Banks raise benchmark interest rates quickly, but not easily. This causes a lot of trouble to the borrowers. their EMI It increases quickly, but does not decrease easily.
When interest rates in the economy rise, the interest rate on your loan rises quickly.
But when interest rates are falling in the economy, interest rates are not falling quickly.
What would be the benefit of external benchmarks?
The Bank has no control over external benchmarks.
Banks can use the Reserve Bank repo rate or Treasury bill yield as an external benchmark.
Now that the bank has no control over the benchmark interest rate, whenever the external benchmark rate changes, the interest rate on your loan also increases or decreases.
The interest rate on your loan will be reduced easily. Bank will not be able to do any tricks here.
State Bank of India has also launched Repo Rate Linked Home Loan (RLLR Home Loan). Reserve Bank’s repo rate has been made the benchmark in this loan. The interest rate of this home loan is lower than the old home loan. For more information you SBI Home Loan Website can go up
I already have a home loan, can I shift?
Yes, if you have an existing loan which is linked to a benchmark like base rate or MCLR, you can shift it to an external benchmark loan.
According to me, you don’t have to pay any special fee for this.
You should contact your bank after 1st October 2019. Find out what the new interest rate on your loan will be if you switch loans?
If the new interest rate is lower than your existing interest rate, you can switch. Also keep in mind the shifting fee.
If your loan is not from bank then you will not get this option. If your loan is from HDFC, DHFL or LIC Housing Finance then you will not get the benefit of this rule now. But in such case you can transfer your loan to bank.
Read on for additional information
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