Nitin Arora
We’ve all probably dreamt of a dream home at some point in our lives. If you’re a step ahead, you’ve probably seen some of the best Home Loan plans available to you, and considered a few. You might even have applied for a mortgage and thoroughly looked through the Home Loan interest rates, before finalizing on one.
You also probably have a location and a locality in mind, in the city of your choice, and what not. But does your hunt for a home end there?
A mortgage, like any other loan, is a long time commitment and it requires full attention and sound judgement, for you to best benefit from it. A Home Loan EMI can be debilitating if not calculated correctly and matched with one’s credit score.
Recent changes in the liquidity and the rates however, may affect you in more ways than you think. Here’s everything you need to know about the new RBI guideline and how it, along with demonetization, affects you.
What are the Changes?
In simple terms, the RBI has simply made a few rate cuts. This clearly isn’t a welcome change when one looks at it at face value. It may seem like the RBI simply wants to magnify the already damaging effects of demonetization that seem to have taken the nation by storm.
The rate of a central bank, in this case the RBI, is the rate at which the bank lends money to other commercial banks in case they run out. It’s no secret that the weight of demonetization has made itself felt on the shoulders of banks, in that there is immense pressure to refill ATMs across the country, which consistently run out of money.
The long lines and endless rush for change doesn’t seem to end for anyone. So, this rate cut by the RBI seems unnecessary and counterproductive since liquid cash is running out quick. However, it might not just be that. Many argue there is another side to the entire rate cut.
How it benefits you
This is where things get slightly complicated. To put it simply, there will be a cut on the EMIs on Home Loans, although, not everyone will feel the same benefits. All banks set their loans on a base rate that is decided upon by the RBI, and this rate remains relatively constant and unchanging. It promotes transparency and keeps a tab on the banks themselves.
However, most other types of loans are dictated by what is called marginal cost of funds based lending rate or MCLR. This MCLR is changed or reset every year. So, if you’re one of the lucky few who opted for a Home Loan after demonetization, you could be paying a significantly lesser EMI than someone who would have taken the mortgage with the same features and conditions.
Because the RBI hasn’t made any cuts in the Repo Rate, banks are flushed with money post demonetization despite the regular rate cut. This input of money reduces the MCLR, making mortgages a lot more beneficial to those who opted for them post demonetization.
What you can do
It is to be understood that banks keep making cuts and hikes in their MCLR, depending upon the flow of liquid money. However, demonetization has made the entire process in favour of those who’ve opted for a loan. If you’re looking to benefit from this, simply convert your loan to an MCLR-linked loan.
Home Loans in this way, are different than other loans. All Home Loans and mortgages are now linked to the MCLR rate of the bank. This way any Home Loan EMI will be more financially secure and almost all Home Loan interest rates will be in favour of the borrower.
Dear Nitin ji, from which date does this rate cut is applicable means MCLR when made effective. secondly, if a person had taken home loan prior to de-monetization, can he change his home loan to MCLR and is the change advisable for him.