The RBI (Reserve Bank of India) has linked the MCLR to the base rate with effect from the 1st of April, 2018. This may increase home loan costs overall. Your home loan EMIs may increase sometime soon as per reports. All new loans sanctioned post the 1st of April 2016 are tied to the MCLR. Loans sanctioned prior to this date are linked to base rates. MCLR implementation was viewed as a way to ensure that customers got more benefits on account of interest rate changes since banks would not transfer all the benefits to buyers under the base rate regime in spite of periodic repo rate cuts by the apex bank.
Home loan customers who are on the base rate system may have to pay more since banks will now start levying higher interest rates with the cycle reversing in the market at present. Since volatility levels are lower for the base rate, this is what many borrowers have chosen in the past. The repo rate has come down by around 2 percentage points over the last couple of years. The base rate has come down only by 80 basis points in the same period. Even in December, 2017, the MCLR was slashed by 1.15% as compared to the repo rate reduction of 75 basis points.
With the expected increase in rates of interest, lending rates on home loans may go up more frequently now. RBI should be keeping the repo rate the same on the 5th of April as per expectations although it may increase in the long term. Banks offer floating rates of interest on home loans and these rates change multiple times throughout the loan tenor. As a result, the difference might not be much as to whether rates are low or high when the loan starts.
However, if the average borrowing cost is taken into account, higher lending rates at the beginning impact the loan eligibility. SBI, the largest bank by way of assets in the country, recently increased its base rate to the tune of 5 basis points with effect from the 1st of April, 2018. The base rate now stands at 8.70% per annum as compared to 8.65% previously. Several other banks like HDFC Bank have also increased their rates. HDFC has scaled up the MCLR to 8.3% while the 6-month MCLR has gone up to 8.15%. ICICI Bank has also increased the 1-year MCLR to 8.30% while Punjab National Bank has scaled up 1-year MCLR rates to 8.30%.