The Marginal Cost of Funds-based Lending Rate (MCLR) is the minimum interest rate banks can charge borrowers. Recent reductions by banks like Punjab National Bank (PNB) and Bank of India (BoI) have created opportunities for home loan borrowers to save on monthly EMIs.
What Is MCLR?
MCLR is the benchmark rate banks use to determine lending rates for loans.
It reflects the cost of borrowing funds, operating expenses, and bank profit margins.
Home loans linked to MCLR are dynamic, meaning EMIs fluctuate when the MCLR changes.
Benefits of Reduced MCLR on Home Loans
Lower EMIs
When MCLR drops, the interest component of your EMI decreases, reducing monthly outflow.
Reduced Interest Burden
Over the tenure of your loan, total interest payable reduces significantly, saving lakhs of rupees.
Better Financial Planning
Lower EMIs free up disposable income for savings, investments, or other expenses.
Refinancing Opportunities
Borrowers with older loans can opt for floating-rate loans or refinance to benefit from the reduced MCLR.
Boost to Consumer Confidence
Lower home loan costs encourage housing purchases, positively impacting the real estate sector.
Recent MCLR Reductions in India
PNB: Reduced MCLR by up to 15 basis points across tenures.
BoI: Reduction ranges from 5–15 basis points across all tenures except overnight.
Effective Date: September 1, 2025.
FAQs
Q1: What is the difference between MCLR and repo rate?
A1: Repo rate is set by the RBI and influences the economy, while MCLR is set by banks based on funding costs and other factors.
Q2: How often does MCLR change?
A2: MCLR is reviewed monthly by banks and affects loans linked to it at specified reset periods.
Q3: Can all borrowers benefit from reduced MCLR?
A3: Yes, borrowers with floating-rate home loans linked to MCLR benefit automatically when the rate decreases.
Q4: Should I switch to an MCLR-linked home loan if I have a fixed-rate loan?
A4: Switching can be beneficial if floating rates are lower than your fixed rate, but consider tenure, processing fees, and future rate volatility.
Q5: How can I calculate my new EMI after MCLR reduction?
A5: Use an online EMI calculator with the updated MCLR rate to estimate savings.
Conclusion
Reduced MCLR rates are a significant relief for home loan borrowers, allowing them to save on EMIs, lower interest burden, and improve financial planning. Staying informed and actively reviewing your loan terms can help you maximize these benefits and make your home loan more manageable.
Published on : 4th September
Published by : SMITA
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