In a recent development, which is all set to concern many home buyers, many top banks have increased their marginal cost of funds-based lending rate (MCLR) and retail prime lending rate (RPLR) by 5-10 basis points w.e.f. October 1. The decision has been announced ahead of the Reserve Bank of India’s (RBI) bi-monthly monetary policy meeting which is scheduled to take place on October 5.
MCLR is the benchmark lending rate used to lend by banks and RPLR is used by non-banking finance companies. One basis point is one-hundredth of a percentage point.
According to sources, it has been assumed that RBI may hike the rate once again third time in a row that will definitely affect the home loan rates. But with top banks like SBI, ICICI, HDFC and PNB already increased their MCLR; the news has become more worrisome for home buyers.
The largest public sector bank, SBI has increased its Marginal Cost of funds based Lending Rate (MCLR) by 5 basis points with effect from October 1. While HDFC has hiked its home loan lending rates by 10 basis points, ICICI has increased its 6-month MCLR to 8.6 percent from 8.5% and one-year MCLR from 8.55% to 8.65%.
Followed by these three, PNB has also hiked its benchmark lending rates for short-term loans by up to 0.2 percent.
What a new loan borrower should do?
So, if an individual is planning to take a home loan now, then he/she must keep certain important points in mind. A borrower must know that there are two types of loan options—fixed rate loan and floating rate loan. In a fixed rate loan, the bank gives you a fixed rate for a particular tenure. In case of floating rate loan, the interest rate will change depending on the interest rate cycle.
Experts suggest that individuals should opt for floating rate loans. According to them, “No one can decide the interest rates while taking a home loan. Moreover, housing loan lasts for a longer duration loan i.e. over 20-year period. Since there will be changing interest rate cycles, it is better to have a floating rate,”
“Moreover, if you look at a typical home loan borrower, most of them end up prepaying the loan. Hence, there is no need to block it at a fixed rate loan.” adds expert.
Under the current financial regime, experts also think that RBI may be forced to go for two more rounds of rate hikes in this financial year to shore up the rupee, which closed at 72.91 on October 1. So it’s advisable to be alert and take proper decision while applying for a home loan.