If you are an existing home loan borrower or about to apply for a home loan then this is the news which will make an impact on your decision. The MCLR (Marginal cost of lending rate) has been increased by the leading banks of India which will have a direct impact on the interest rate of all kinds of secured loans i.e. home loan, two-wheeler loan or car loan. The interest rate is going to be increased in coming days.

The largest lender of India, The State Bank of India has increased its MCLR  by up to 25 basis points (bps). In the same row, it comes HDFC, ICICI and PNB too. HDFC has increased its lending rate by  0.20 percentage points whereas ICICI and PNB have increased its MCLR by 0.10 percentage points and 0.15 percentage points respectively. The mentioned lenders are not the only one to hike the interest rate, the other banks are also likely to revise their MCLR in the days to come.

Is It Worth to Switch Your Home Loan from Base Rate to MCLR?

Whatever may be the reason behind increasing the MCLR, the existing borrower and the home loan applicant are the ones who are going to suffer. At the instance, it may look like a small hike in interest rate but in long term (especially when it comes to the home loan), it will bring a huge difference in the total cost of borrowing. Let’s understand the fact with an example.

Mr. Abhinav has a home loan of Rs 40 lakhs at the interest rate of 8.35% for 20 years. His EMI at present is Rs. ₹ 34,334. As the MCLR rate has been revised, the interest rate has been increased by 25 basis points. So his new interest rate has become 8.80%. With the revised interest rate his EMI has changed to ₹ 35,476. There is a difference of  Rs. 1142 in every month. In overall the difference in the cost of borrowing will be Rs.2,74,084 which is a quite big amount for any middle-class Indian.

In such scenarios when the interest rates have been increased by the lenders, there is nothing much which a borrower can do. The only thing which one can do is to opt for a fixed interest rate. A fixed interest rate is generally higher than a floating interest rate but you will be at a stagnant rate of interest until the end of the tenure.  

Whether it may an inflation or a raised deposit rates, a raise in interest rate is hit in the wallets of the public. Indian borrowers are not new to such turbulence of the market which hits them directly or indirectly.