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MCLR Cut – 7 Myths and Misconceptions Among Home Loan Borrowers

“Sharp MCLR Cut brings relief to the home loan borrowers” read one of the news posts. On top of it, the senior management of the banks appealed existing home loan borrowers to shift to MCLR to take advantage of MCLR cut. I received large no of queries on my blog on how to take benefit of MCLR cut. In certain cases, wherein i suggested the readers that they will not be benefited immediately, i received some angry reactions :). The readers thought that i am trying to mislead them. But once they approached the bank and clarified the points shared by me, their apprehensions were gone :).

Let me clarify that i have already discussed almost all the points to be discussed in this post in my earlier posts. As these points were discussed in bits and pieces & may be in some other context, therefore, i thought of compiling all the points in the single post. Secondly, this post is an attempt to put all the points from the perspective of MCLR cut. The reason being, MCLR cut is a hot topic these days :). Unlike other news articles, my objective is not to create sensationalism but to provide RIGHT PERSPECTIVE to the readers of this blog. It will help the readers in taking right financial decision.

MCLR Cut – 7 Myths and Misconceptions Among Home Loan Borrowers

As i shared in my post, Marginal Cost of Funds Based Lending Rate that MCLR is the benchmark rate for all the new home loans sanctioned on or after 1st April 2016. In my opinion, one of the key reasons for confusion among home loan borrowers is too much communication from bank’s end. At the same time, there are no efforts to educate and make the borrower aware on how the home loan interest rate is fixed. I suggest the reader’s to go through my posts under Home Loan category. This topic may sound simple and easy but on the contrary, it is more complex in nature. Let me try to explain as a layman the 7 most common myths and misconceptions among home loan borrowers.

1. New and Existing Home Loan Borrowers are treated equally:

It’s a biggest misconception that new and existing home loan borrowers are treated equally by the home loan provider. There are multiple factors to be considered. As i explained in my earlier posts that banks are in the business of deposit and lending. In layman language, they mobilize funds through deposits and then lend same funds after adding their margin hypothetically say 3%. This is the justification given by banks i.e. differential cost of funds to explain the difference between interest rate for new and existing borrowers.

For example, Mr. A availed the home loan in 2014 at 9.75%. At that time the cost of funds was 6.75% and bank added it’s margin of 3%. Now today the cost of funds for banks is reduced to 5.65%. Therefore, the home loan interest rate for the new borrower is 8.65%. In short, the new and existing borrower will be paying a differential interest rate.

I discussed this concern in detail in my following posts

Step Motherly treatment to Existing Home Loan Customers

Why Higher Interest Rate for Existing Home Loan Customers

2. I am an existing borrower with MCLR linked home loan. My home loan interest rate should decrease immediately:

Another key concern of existing borrowers on MCLR is why i am not getting the immediate benefit of MCLR cut? The answer is that reset period under MCLR is One year for the SBI home loan. Though reset period of Kotak Mahindra Bank is 6 months and whereas HSBC home loan reset period is 3 months. A general observation is that the interest rate of banks with shorter reset period is HIGH. The max reset period allowed by RBI is one year. For example, if i availed SBI home loan on 1st Dec 2016 then my interest rate will remain fixed till 30th Nov 2017. Therefore, any benefit of MCLR cut from 1st Dec 2016 to 30th Nov 2017 will be passed to the borrower only on 1st Dec 2017. The borrower has to wait till next reset date for lower interest rate due to MCLR cut.

3. My home loan is from Housing Finance Company like HDFC Ltd, Indiabulls etc. Post MCLR cut, my home loan interest rate should decrease immediately

Please note that MCLR is the benchmark rate only for Banks governed by RBI. If you availed home loan from housing finance company then the home loan is linked to BPLR or RPLR. This confusion is more predominant among the home loan borrowers of HDFC Ltd. After the MCLR cut by HDFC Bank, readers asked me when they will get the benefit. As i explained in following post that HDFC Bank and HDFC Ltd are 2 different financial institutions. HDFC Ltd is not governed by RBI and is an HFC.

Floating Home Loan – BPLR or RPLR Vs Base Rate

Recently, HDFC Ltd has increased the spread over RPLR (16.30%) to 7.60% so that new customers can avail home loan at 8.70%. Unfortunately, there is NO cut in RPLR to pass the benefit to existing borrowers. On the other hand, in the case of banks though the MCLR cut benefit will be passed with a delay (on reset date as i explained in point no 2) but the benefit will be passed to existing borrowers. This is the reason why i prefer home loan from banks compared to housing finance companies. Whereas in the case of HFC, most of the times you have to conversion fees to reduce the home loan interest rate.

Lastly, another common query from borrowers of HFC’s is how can they shift from RPLR or BPLR to MCLR? The answer is NO to this question. As i explained MCLR is the benchmark rate of banks. The home loan from HFC will be always linked to BPLR or RPLR.

4. MCLR cut is directly proportional to Home Loan Interest Rate Cut for new borrowers:

It is true for existing home loan borrowers but not for new home loan borrowers. For example, before MCLR cut SBI’s MCLR was 8.90% and spread was 0.25%. Therefore, the net home loan interest rate was 9.15%. Now the bank cut the MCLR (One year) by 0.90% and new MCLR is 8%. Ideally, the home loan interest rate for new borrowers should be 8.25% but it is not the case. Bank has increased the spread over MCLR from 0.25% to 0.65%. Therefore, a decrease of 0.90% in MCLR was offset by 0.40% increase in spread. The benefit to the new home borrower is only 0.5% i.e. interest rate reduced from 9.15% to 8.65%.

On the contrary, this statement is true for existing borrowers. For example, i availed home at 9.15% on 1st Nov 2016. On the date of reset i.e. 1st Nov 2017 my home loan interest rate will be reduced equivalent to MCLR cut i.e. 0.90% assuming no more MCLR cut till 31st Oct 2017. The reason being spread offered by SBI to me i.e. 0.25% will remain fixed for home loan tenure. Therefore, my home loan interest rate will be 8.25% from 1st Nov 2017

5. My home loan is linked to Base Rate of the bank. I will shift to MCLR to reduce my home loan interest rate:

It is not a correct understanding. I explained it in detail in my post, why banks are forcing existing Home Loan borrowers to switch to MCLR? To conclude, there is NO immediate financial benefit of switching from base rate to MCLR. On the contrary, the disadvantage is that under base rate the home loan reset date is every 3 months whereas MCLR reset period is one year. In the case of the short reset period by banks like HSBC, the interest rate offered is high. In some cases, banks are misleading borrowers to switch of MCLR and there are NO charges for same. The statement from bank executive is correct but they are not informing the borrower that home loan interest rate will remain same.

Therefore, if you shift from base rate to MCLR your home loan interest rate will remain fixed for one year. Here i am assuming that borrower is not willing to pay the conversion fees. If you continue with a base rate then your home loan interest rate will come down with a base rate cut. Also remember that currently only 15% home loans are linked to MCLR. I have the explained the reason of same in my last post in Home loan section i.e. why it is beneficial to stay with the base rate?

Last but not the least as i keep highlighting that transmission under MCLR is faster compared to the base rate. I understand that currently borrowers on base rate are inclined to shift to MCLR but any such decision should be financially wise. Also keep in consideration that when the interest cycle will reverse then interest rate under MCLR will increase at a faster rate compared to the base rate.

6. To reduce the home loan interest rate by paying conversion fees is financially beneficial:

I explained this topic in detail in my post home loan conversion fees. Just to add that whether to pay conversion fees or not, the decision varies from case to case basis. It depends on various factors as i explained in my other posts. Though some of the experts give basic thumb rule to decide but at the macro level, these are only assumptions.

Currently, banks are charging 0.5% of the balance outstanding + service tax to reduce your home loan interest rate. For example, if i paid Rs 30,000 towards conversion fees then i need to calculate for how long it will take me to recover this upfront cost from savings through home loan interest. I will be assuming a status quo in terms of interest rate, prepayment, balance home loan tenure etc. Therefore, it is advisable to do a cost-benefit analysis before you take any such financial decision.

7. Balance transfer from HFC to Bank is financially beneficial to take advantage of MCLR cut:

It is not correct decision always. You should not take any financial decision in haste. It is always a marketing strategy of home loan providers to churn the customers from competition to complete their targets. Please note that balance transfer is not financially wise decision in most of the cases because of cost and operational hassles. You might have observed that normally i suggest borrowers pay conversion fees instead of the balance transfer. Only in case the existing HFC’s or banks are adamant not to reduce home loan interest rates or interest rate is too high, it makes sense to balance transfer.

Also, it is not wise to expect that all the banks or HFC’s will react immediately on MCLR cut. Normally, market leaders like SBI take the lead and other follow the suit in some time. Therefore, you should always give some time to your bank or HFC to react. For example, as i mentioned currently HDFC Ltd is not offering reduced interest rates to existing borrowers even on payment of conversion fees. Based on the response from HDFC Ltd some readers asked me whether they should shift to SBI. My answer was negative. The reason being, it is too early to decide. I can assure that HDFC Ltd and other HFC’s will definitely come up with conversion fees offer. They will match the interest rate of existing borrowers on payment of conversion. Have patience and wait for 2-3 weeks time.

Words of Wisdom:

My suggestion to home loan borrowers is not get carried away by sudden developments like MCLR cut. Be financially wise. Please do your calculations before you take any financial decision. Always remember that interest rate is a cyclic process. The interest rates never remain either too low or too high. The macroeconomic indicators always balance it out. In the case of reversal of interest rate cycle, the borrowers shifting from base rate to MCLR will regret their decision. In my opinion, it is prudent to wait for a base rate cut before you decide to shift to MCLR.

Copyright © Nitin Bhatia. All Rights Reserved.

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saurabh jaiswal
saurabh jaiswal
7 years ago

Sir.. Why banks are not reducing base rate since Oct 15..Its almost a year that major banks like ICICI, SBI have reduced base rate..

vicky
vicky
7 years ago

SBI did reduce base rate by 0.05% in Jan 2017 but that is very minimal compared to the Repo rate cut since mid last year. I think Nitin also indicated that banks are very likely to reduce base rate in coming months, am I right Nitin?

Tomar
Tomar
7 years ago
Reply to  vicky

Vicky,Is it true that Base Rate is revised every 3 months and therefore SBI may cut/revise it again in April 2017 ?

vicky
vicky
7 years ago
Reply to  Tomar

Banks are at their discretion to revise base rate so if they decide to do so, yes we may see a change in April.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Tomar

No it is not true. It is not mandatory to revise base rate every 3 months. I think you are referring to your home loan interest rate reset date.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  vicky

You are right. I am expecting cut in base rate in coming months.

Nitin Bhatia
Nitin Bhatia
7 years ago

As i mentioned in my post that transmission under base rate is slow compared to MCLR. Base rate will be reduced shortly.

saurabh jaiswal
saurabh jaiswal
7 years ago
Reply to  Nitin Bhatia

Is MCLR and Base Rates are calculated separately or are dependent.

Nitin Bhatia
Nitin Bhatia
7 years ago

Both are calculated separately. Any change in Repo rate impacts both MCLR and Base Rate.

sunil
sunil
7 years ago

Sir

Is it possible to reduce the rate of interest for the home loan by paying certain amount, say, 50%, of the balance home loan? One of the official of leading bank told that it is possible.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  sunil

It depends on the bank’s policy. In certain cases bank waive off the conversion fees subject to fulfillment of certain condition. All the communication with the bank in such cases should be in writing.

Kumar
Kumar
7 years ago

Hi Nitin,
If a person has worked in foreign country during for three quarters in other country and last quarter till date in india, then how to submit the income detail of last two year to bank for home loan approval? Form16 of 2014-15 shows only last quarter income. Is the foreign income detail need to be furnished to bank?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Kumar

It depends on the bank. You can present the NRE bank account statement if the money is repatriated to India.

Bixapathi Alagandula
Bixapathi Alagandula
7 years ago

Sir,
I have a home loan with SBI taken in Oct 2015 under base rate regime at 9.3 base + 0.25 spread i.e., 9.55% ROI.

Now if I switch to MCLR, will my ROI be 8%(1yr MCLR) + 0.25 spread i.e., 8.25% OR 8%+ 0.65 new spread i.e., 8.65%?

As of my knowledge, spread will be fixed for the tenure of the loan. So will it remain 0.25% even on switching to MCLR from Base rate?

vicky
vicky
7 years ago

I think if you switch from base rate to MCLR, your interest rate will remain same for next one year (assuming you don’t pay any conversion fee)

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  vicky

Vicky is Right. There will not be any change in the interest rate. Spread under MCLR is different from base rate.

If you pay conversion fees, your interest rate will be reduced to 8.65%

G Hari
G Hari
7 years ago

Hi Nitin,
I opted for SBI loan with 8.9% MCLR + 0.35% spread. Can you please let me know whether the spread is fixed for the loan tenure or after 12 months SBI can revise both the MCLR and spread for my loan.

Richard Mauk
Richard Mauk
7 years ago
Reply to  G Hari

To the best of my knowledge, the Spread is constant for the entire loan tenure.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Richard Mauk

Spread is FIXED for entire home loan tenure. If everything remains same, your home loan interest will be revised to 8.35% after 12 months.

pradeep d
pradeep d
7 years ago
Reply to  Nitin Bhatia

Nitin,
I just want to bring to your notice regarding the spread of MCLR need not be a fixed one.
One of my friends who did a loan transfer to SBI in Dec 2016 has the sanction document saying that both the Margin and MCLR may be revised at the bank’s discretion at the reset date. He got and MCLR of 8.9%+0.25% spread.
This effectively means he faces an uncertain rate in Dec 2017 and confirms that Spread can also change during the loan tenure.
I bet this will not be the case for new borrowers from Jan because they anyways pay high spread.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  pradeep d

The spread is only changed based on the customer’s request. If you don’t make request then the spread will remain fixed for home loan tenure. Bank will not change.

The clause shared by you is included so that bank can charge conversion fees and re-write home loan i.e. reduce the spread.

ram
ram
7 years ago

i am planning to take a new loan. Currently the latest SBI offer is 8 + 0.65 = 8.65. Can we negotiate on the spread ?

Richard Mauk
Richard Mauk
7 years ago
Reply to  ram

With the drop in Interest rates, I don’t think the bank will be too willing to negotiate, but it’s definitely worth a try. You can use a female as a primary applicant to get a little lower spread, but do read up on Nitin’s pointers on the Effects of Co-Applicant to be clear. Some banks also negotiate spread if you have FDs with them, that is also worth a try.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  ram

You have not mentioned the home loan amount.

Anuj
Anuj
7 years ago

I am having a loan of 37.5 lakh fom icici on 9.4% for 20 years based on base rate. Would it be beneficial to switch to MCLR with offers of 8.7% or wait for the base rate to decline further.

Richard Mauk
Richard Mauk
7 years ago
Reply to  Anuj

If you’re on base rate, you need to read up on Nitin’s take on Base to MCLR conversion and after careful analysis make your move.

Nitin Bhatia
Nitin Bhatia
7 years ago

I have not mentioned that base rate is revised every 3 months. It is home loan interest rate reset period.

If you switch to MCLR then there will not be any change in the interest rate. Under MCLR, your spread will increase so that interest rate remains the same.

To reduce your interest you need to pay 0.5% of balance outstanding as conversion fees + service tax. Normally, SBI does not offer discount or waiver on conversion fees.

pradeep d
pradeep d
7 years ago

People going in for current MCLR rates with SBI will be the most disadvantaged due to very high spread. It will bite people big time when interest rates rise.
In about 6-12 months time, SBI will probably increase MCLR to 8.5% (when bulk of demonetization money is withdrawn from banks) and at that time these people will have to pay 9.15% due to high spread. I bet SBI will offer lower spreads (close to 0.25%) to new customers.
So this is not the right time to take the MCLR plunge.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  pradeep d

You got it right :)

Tomar
Tomar
7 years ago
Reply to  Nitin Bhatia

Thanks Nitinjee !

Tomar
Tomar
7 years ago
Reply to  pradeep d

Pradeep! I have a Maxgain loan of 99 Lacs at base rate of 9.40% currently. SBI is offering to switch it to mclr at 8.90%,at a conversion cost of 0.46% of this loan amount. Dont I recover the cost of conversion in the one year of reset period of 12 months ? On the other hand,what do I gain by continuing in Base Rate ? Pls enlighten !

pradeep d
pradeep d
7 years ago
Reply to  Tomar

Hi Tomar,
I agree the current MCLR rates are lower compared to what you pay under base rate. My problem with the current Jan MCLR is the very high spread. You will be paying a whopping 0.9% spread over the MCLR for next many years to come. Only non-creditworthy customers are charged such high levels of spreads
Assume the easy demonetization money evaporates from the banks in 6 months, they will surely raise their MCLR to 8.5% levels because that will be their cost of funds. They will reduce the spread to 0.3% or so which will apply only for new customers. This way they can sustain the same overall rates for new customers but you will be paying nearly 9.4% (8.5%MCLR + 0.9% spread) sometime early next year (1 year after you convert). Basically you will back to where you are now.
And worse, if the rates rise again in 2 years time you will among those paying the highest interest among MCLR customers.
I have to admit that I have a loan taken in last July at 9.4% (9.15% MCLR + 0.25% spread). Low spread makes my case so much more advantageous because I will only pay 0.25% more than prevailing MCLR at anytime.

My own take is that, they will reduce base rates in a couple of months and MCLR will go up in 6 months.The banks are waiting for base rate customers to convert (and fall into the trap of high spread). Banks get a conversion fee and high spread customers pay more forever thus banks make a killing. Its the question of who blinks first.
I would convert only if my spread is at lower levels that what is now. You need to negotiate to bring down the spread or switch to a bank with lower spread even if their MCLR is 8.3 or 8.4%. Difference of MCLR of various banks tend to be within 0.2-0.25% range only.

Tomar
Tomar
7 years ago
Reply to  pradeep d

Got your point that if I switch now,my spread will forever remain 0.90% ! I dont think SBI will negotiate with an existing customer who is on Base rate. In other words,the only option available to me is to switch to another bank who might offer lower spread ? Till then continue in Base Rate ! Am I thinking correctly,Pradeep ?

pradeep d
pradeep d
7 years ago
Reply to  Tomar

Yes since you will have to pay a conversion fee of 0.5% anyway, you can explore switching to another bank with lower spreads or you may stay put for a couple of months to see what they do with base rate. Unfortunately both RBI and Banks are not bothered about base rates remaining static for the past 18 months.
Base rate model used to favor new customers while MCLR is mostly favoring existing MCLR customers because banks are playing with spreads now for new customers. Its called the Mallya Tax.

Tomar
Tomar
7 years ago
Reply to  pradeep d

Thanks !

PJ
PJ
7 years ago

I have a loan account with HDFC paying interest at 9.2% currently. They have agreed to bring me down to 8.7% by paying a conversion fees. Bank of Baroda is offering me loan at 8.35% (MCLR + 0 spread). Should I move to BoB. BoB interest rate is linked to 1 year MCLR to be reset after 1 year. There is a good chance that their MCLR increases in a year or two. Do you think I will be better off with BoB MCLR linked rate or HDFC in an increasing interest rate regime? Should I switch?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  PJ

You have not mentioned the balance outstanding and balance home loan tenure.

PJ
PJ
7 years ago
Reply to  Nitin Bhatia

Balance outstanding is about 50 lacs and loan tenure remaining is 12 years

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  PJ

You may shift to Bank of Baroda provided your credit score is more than 760. As 8.35% interest rate is applicable only if the credit score is more than 760.

rockstar85
rockstar85
7 years ago

Hi Nitin, I am paying LIC home loan @ 9.95% interest right now. outstanding amount 15.43L , tenure left 4.8 years with my current EMI. should i switch over to Axis bank @ 8.65 (MCRL 8.15 + .50 spread) offering me at no processing fee (how ever other charges like MOTD, cersai etc adds). i dont think LIC will ever come near to this rate in near feature.. they are in different world.

pradeep d
pradeep d
7 years ago
Reply to  rockstar85

Hi,
One of my friends told me that LIC has reduced the rates of existing customers (in floating loan) to 8.95% this month. Check out if they are doing it for you also.

rockstar85
rockstar85
7 years ago
Reply to  pradeep d

it seems they can write off with 1150 rs to 9% from current 9.95%. first i did a write off from 10.20 to 9.95 last year and it had clearly said no more write offs. how could they offer me such scheme again?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  rockstar85

You check your home loan agreement. For some of the customers, the no of re-writing options during home loan tenure are restricted to 2 or 5. It seems you already exhausted your no of options therefore you cannot further reduce your home loan interest rate. .

Neha Gupta
Neha Gupta
7 years ago

Nitin sir, I have a SBI Maxgain homeloan taken for 38 lakhs on 22-Jan-2015 for a period of 230 months & i have been paying EMI regularly since then. my current interest rate is 9.35 with a drawing power of 36 lakhs(approx). Can you please tell me whether it is advisable to switch to MCLR or not as i have been confused since i can see that by paying 0.46% of drawing power, i will earn interest rate benefit of 0.6% as the interest rate will be 8.75%. i have come across article from surya bhatia from asset managers firm in mint newspaper on 01-Feb, where he has mentioned that it will be advisable to switch to earn better interest rate due to MCLR switch.

Tomar
Tomar
7 years ago
Reply to  Neha Gupta

Neha,pending Nitin’s reply my take is that you wait till the huge spread of 0.75% (diff between current MCLR & Offer) gets reduced to a reasonable figure with more reductions in Base Rate and MCLR to come. Though you could recoup the conversion fee in the one year reset period,you will be stuck with this huge spread for ever ! But switching to a different bank with lower spread could be worth considering even now,with accompanying hassles of course. Good luck !

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Tomar

I agree with Tomar

Tomar
Tomar
7 years ago
Reply to  Nitin Bhatia

Thanks Nitin,I owe my limited knowledge to your articles in this forum !

Saranya
Saranya
7 years ago

I have taken home loan for 40 lakh, 10 years, 9.9 (0.5)..now my interst rate ia 9.4…would it be advisable to move to another bank offering mcrl 8.15+0.5.

Saranya
Saranya
7 years ago
Reply to  Saranya

Balance outstanding is 38 lakh and 8.6 years

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Saranya

I will not suggest. You may check with Bank of Baroda if your credit score is more than 760. The ROI is 8.35% with 0% spread.

Sandip Maher
Sandip Maher
7 years ago

Nitin Sir,
I have taken Home loan Interest Saver from IDBI 15 K for 20 Years. Now my ROI which is on Base Rate is 9.5 + 0.15. By paying 0.10% + Service Charge it will 8.95% (3 months MCLR+0.15%). Is it ok to Stay on Base rate or Change to MCLR. I am confused, Please Advice.
Balance Out. 14.85 Lakhs Duration 18 Year. Its Interest saver Home Loan.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Sandip Maher

I request you to check the negatives of MCLR as i shared in my posts. In my opinion, you may wait for couple of months as base rate is expected to come down in near future.

sten_mpk
sten_mpk
7 years ago

Nitin Sir, I am planning to go for SBI Maxgain home loan,but the spread(0.75%) seems to be on the higher side as per the current MCLR which is 8.00%. Bank of India and Union bank of India seems to be offering a better spread.Do you recommend going to them.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  sten_mpk

Personally i suggest to go ahead with market leader only. If you are specifically keen on maxgain type of home loan then SBI is the best bet.

Suresh Rajendran
Suresh Rajendran
7 years ago

Hi Nitin,

I took homeloan of 35L with interest rate of 10.1% fixed for 2 yrs total tenure of 15 years with LIC on property value of 52L in Feb 2015. i paid Rs 1,150 to convert it to floating rate of 9% with LIC from Feb 2017.

I have a cibil score of 830 now & outstanding balance is 31L. I want to take top-up loan now & LIC is offering top-up loan till 30% over the property market value at 9% interest.

pls advise whether i should take top-up loan with LIC or should i try with Nationalised banks like BOB where the interest rate is only 8.35% for higher cibil scores ???

Pls note that i plan to take it in the Month of April & whether my conversion with LIC will lead to any issues >>

pls advise..

Suresh

Nitin Bhatia
Nitin Bhatia
7 years ago

In my opinion, you discuss with Bank of Baroda and if they are willing to lend the amount required by you then you can transfer your home loan.

Aaron Suman
Aaron Suman
7 years ago

Sir,
Kindly help me out . I have a home loan from LICHFL for Rs 2800000/- .Term 25 years. EMI Rs 25340/- The rate was fixed at 9.95 pa for five years with effect 18 Feb 2011 and then reset as per LHPLR. The present floating Rate of interest is 11.45 %( LHPLR minus bps). i am confused as i want to reduce the tenure to 15 years and get better interest rates. should i consider shifting to Banks ??? kindly advise

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Aaron Suman

You may pay conversion fees to LICHFL and reduce your home loan interest rate.

pradeep d
pradeep d
7 years ago

Hi Nitin,
What do you think about banks keeping base rates the same for the last 16 months while in the same period MCLR linked rates have fallen nearly 1%?
They have also got huge amounts of demonetization money as well which makes the cost of money very low.
Is this not a scandal?
Do we have a banking regulator at all in this country?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  pradeep d

It depends on calculation of cost of funds. The banks are smart enough to manage :)

pradeep d
pradeep d
7 years ago
Reply to  Nitin Bhatia

Do the banks have an obligation to the regulator to show this is how they calculate base rate and here it is 9.3% for the past many months?
Banks have absolutely no motivation to revise base rates as it applies only for the older customers.
I just feel RBI is toothless to regulate issues that affect customers. We know govt never cares about people.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  pradeep d

RBI has access to all these calculations.

suresh N
suresh N
7 years ago

Hi Nitin,

I have taken 30.80 lack home loan from SBI for under construction property in Sep 2016 , I have tried to apply PMAY-clss as i don’t have any house with my name but SBI not accepting my application because of loan amount is crossed 30 Lack, could you please let me know any limit for loan amount for PMAY-CLSS

Please let me know any alternate way to apply PMAY-CLSS as SBI not accepting application , also please suggest to switch my loan to other lender like ICICI as they are accepting PMAY-clss applications to get 2+ lack interest Benifit

suresh N
suresh N
7 years ago
Reply to  suresh N

As of today SBI release 15.5 Lack

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  suresh N

Subsidy is available for home loans of up to 12 Lac. In my opinion, you are not eligible.

Anshul
Anshul
7 years ago

You mentioned above that the base rate reset clause is 3 months. I have home loan from Sbi and my interest rate was changed in January 2017. Can I expect a change again in April 2017?

The reason being currently, the difference for me in my rate and mclr based rate is 0.6% and still 18 years of tenure and 41 lakh loan amount is pending. I was planning to switch to MCLR, but should I wait for April to see the reduction in base rate or any probability of mclr or spread coming down and then take a decision.

Your thoughts and suggestion are highly appreciated.

Thanks.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Anshul

I mentioned about reset clause but it is at the discretion of the bank whether to change the base rate or not. If there is no change in base rate then your interest rate will remain same. There is a probability of change in base rate shortly. You may wait for sometime.

Suresh Rajendran
Suresh Rajendran
7 years ago

Hi Nitin,

Govt recently announced that there will be subsidy given on home loans for Middle income group who earn till 18L per Annum.

Is this option applicable for Home loans taken two years back or only for new Home loans from this year ??

Thanks,

Suresh

Nitin Bhatia
Nitin Bhatia
7 years ago

The interest subsidy is not available for old home loans. If you applied and got home loan sanctioned after 1st January with annual income of less than 18 Lac are eligible for interest subsidy.

vicky
vicky
7 years ago

Hi Nitin,
SBI reduced Base rate on 1 April 2017 but its a mere 0.15% deduction (not at all at Par with MCLR linked rate)

What is your opinion of moving from Base rate to MCLR linked rate now? Is it wise to wait until next quarter?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  vicky

It depends on the revised interest rate offered under Base Rate and MCLR after payment of conversion fees. In my opinion, the interest rates have bottomed out and there is not much scope for further cut.

milind gaikwad
milind gaikwad
7 years ago

Hi Nitin
I have takan home loan in Aug-2016 ,so i am eligible for MCRL based interest rate ??

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  milind gaikwad

It depends from where you availed Home Loan i.e. Bank or HFC. MCLR is only for banks not for HFC’s.

Vaibhav Jadhav
Vaibhav Jadhav
7 years ago

Hi Sir,

I applied for home loan at Bank of Baroda in Mumbai having interest rate of 8.35%.
But today I received a call from Bank of Baroda’s loan department saying that, as I had not taken any previous loan and not having any records with them therefore my CIBIL score is low so the interest rate for first year will be 8.85%(0.5% extra). After 1 year bank will review the account and then interest rate can be reduced.
Is this normal process and I have to go through it??
Please advice.

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Vaibhav Jadhav

It is correct. The home loan of Bank of Baroda is linked to credit score. In case, credit history is not available the interest rate will be 8.85%.

Vaibhav Jadhav
Vaibhav Jadhav
7 years ago
Reply to  Nitin Bhatia

Hi sir,
Thanks for your valuable reply.
I have some questions in my mind:-
1)This scenerio is applicable for bank of baroda only?
2) After one year bank really reviews the file and lower down the interest rate if our record is clear?

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Vaibhav Jadhav

1. Yes
2. It is subjective but can be yes or no.

Vaibhav Jadhav
Vaibhav Jadhav
7 years ago
Reply to  Nitin Bhatia

Hi Sir,
Again I received a call from BOB loan department and this time they are asking me to submit the undertaking which describes :-
————————-
“TO WHOMSOEVER IT MAY CONCERN
In consideration of Bank Of Baroda sanctioning us / me Housing Loan of
Rs. ………………/-. I / We hereby undertake to adjust the loan proportionate retirement benefits from my / our at the time of retirement to the extent of my loan eligibility at 40% of my pension.
I / We understand that on the basis of my / our undertaking bank is agreed to sanction Housing Loan of Rs. ………………/- to me / us”.
————————–
As I’m mentioning my father as co-borrower/co-applicant and he will be retire after 5 years they are asking me to sign above undertaking from my father and submit it. I understand that this is related to my fathers pension but didn’t get it what it exactly means.
Is this really require??
As bank can take over the property, which papers will be with them if we didn’t paid the loan amount on time.
Awaited for your reply…
Thanks…

Nitin Bhatia
Nitin Bhatia
7 years ago
Reply to  Vaibhav Jadhav

It is required as he is guarantor of the home loan.

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