The calendar year 2017 has been a good one for home loan customers. The MCLR (Marginal Cost of Funds based interest rate) introduced in April 2016 brought down the home loan interest rates for new borrowers.
Earlier, borrowers under Base Rate could also go in for refinancing options to bring down their interest rate burden.
August 2017 saw the Reserve Bank of India cut their key interest rate reflected by the Repo Rate to 6.0% from 6.25%. The main reason behind the cut was dipping inflation due to a slump in food prices. Lower Repo Rate (rates at which banks borrow from RBI) meant lower cost of funds for banks, hence lower interest rates for borrowers.
[bctt tweet=”Post the RBI rate cut in August, most banks came up with interest rate cuts in the ensuing months.” username=”RoofnFloor”]
The festive months of October and November also saw various offers being introduced for the prospective borrowers.
Future trends
The RBI conducted its fifth review of the monetary policy for 2017-18 on 06 Dec 2017. The central bank kept the Repo rate unchanged at 6.0% and the Reverse Repo Rate at 5.75%. The market had expected a rate cut in line with the positivity created by the upgrade of India’s sovereign rating by Moody’s. However, the central bank expects the business scenario and credit growth to improve. Hence, it held the key rates neutral.
With the MCLR benchmark in place, banks pass on their cost of funds with a margin as interest rates to borrowers. However, when there is no change in the cost of funds (Repo Rate) to the bank, interest rates on various loans, including home loans would show no movement either.
Moreover, MCLR rates are set to reset at certain specified intervals (like a yearly or a six monthly reset). An increase or decrease in interest rates is passed on to the borrower only at the time of reset.
Existing borrowers would not have much to cheer on as interest rates would remain stable in the near future, and new borrowers can make good use of the ongoing festive offers like a waiver or reduced processing fee/ subvention on interest.
