Many Major Banks Have Reduced Home Loan Interest Rates - What Should You Do Now?

Several major banks like the State Bank of India (SBI), Bank of Baroda (BOB), HDFC Bank and the Punjab National Bank are known to have reduced their home loan interest rates. In case you are among those with an MCLR-linked home loan, you can get your home loan EMIs reduced.

Having an MCLR-linked home loan, you can wait to reach the loan's reset date and thus check if you are getting any EMI reduction. If yes, the bank can be contacted for the same. Furtehrmore, there is another option, which involves switching to an External Benchmark-Linked Rate (EBLR). EBLR is tied to the RBI repo rate which is more transparent and that lets you enjoy faster rate of interest perks.

Your total interest outflow can also be reduced via other methods such as refinancing with some other lender. Making prepayments can also prove helpful in the interest reduction on your home loan. Now that the rates have are being reduced by many major banks, here's what you can do to make things financially more beneficial for yourself.

Reduced Home Loan Interest Rates - What Should You Do Now?

The following steps can be taken now:

• Checking Your Loan Type: First, identify which type of home loan is yours – whether it is linked to MCLR, or EBLR. This is important because if the loan is MCLR-linked, there will be a rest date to know to then get the EMI reduced.
• The Reset Date: Now, find out the reset date, which usually ranges between 6 months and a year. Knowing the rest date helps you understand when you can apply for the rate reduction to the EMI charged.
• Connecting with the Bank: Now is the time to contact the bank and know the process for EMI reduction post MCLR-cut.
• Switching to EBLR: As discussed in the starting, you can now speak to the bank if the transition is possible, as that brings speedy benefits and a greater amount of transparency.
• Balance Transfer or Refinancing: Do an evaluation to find whether or not a balance transfer to some other lender would give a lower rate, and if that would be an appropriate step. This involves checking the processing fees as well as the other charges like the administrative charges.
• Prepayments: You can also reduce the overall interest by making part-payments or prepayments for making up for the principal loan amount taken.

You may also like "Can Bank Deduct Your Home Loan EMI in Advance?"

More on MCLR and EBLR

The Marginal Cost of Fund-Based Lending Rate (MCLR) is a bank-specific internal benchmark, while the EBLR, as the full-form suggests, is an external benchmark. The former brings benefits from rate cuts, where the benefits are transmitted at a slower pace to the borrower, as it needs the reset date of the loan. However, with EBLR, things are quicker and the EBLR is also most-commonly tied to the repo rate by the Reserve Bank of India.

Take an Example

Let us go through an illustrative example to understand how the reduction in rates can benefit you with lower interest rates and EMIs.

Suppose you borrowed a home loan of Rs.40 lakh for a tenure of 10 years, where the rate of interest charged has been 9%.

Let us now say, the interest rate reduces to 8.5%. Hence, the Equated Monthly Instalments to be paid by the borrower will also decrease, thus reducing a good overall amount over the tenure.

Hence, we have,

Old EMI of Rs.50,670 to be deposited every month.

New EMI of Rs.49,594 to be deposited every month, when the rate of interest drops to 8.5%.

The resulting monthly savings will now amount to Rs.1,076 after the lowered ROI.

Finally, total savings over the 10 years' loan tenure will be almost Rs.1.3 lakh (120 months).

It is crystal clear that the rate reduction can lead t lowered EMIs and a substantial money saving as the end.

Don't miss this! "Should you refinance your home loan to take advantage of the latest rate cuts?"

Final Thoughts

As discussed, banks like SBI, BOB and HDFC have recently cut the MCLR rates. This is going to help the existing customers with lowered EMIs for the home loans borrowed from these institutions.

While the existing customers can also choose to evaluate the loan benchmark, they can select between EMI reduction and tenure reduction. At the same time, the new home loan borrowers can first compare the rates from different lenders to find the most suitable one. The new ones should be considering the floating rates for higher long-term savings, while they can also make some effort to improve the credit score for greater benefits.

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