Factors that affect MCLR
MCLR is determined by a range of factors, all of which contribute to the interest rate. MCLR is calculated in light of the following factors:
The marginal cost of funds –
The marginal cost of funds is the most important factor affecting the MCLR interest rate. Rates for savings accounts, short-term interest rates such as REPO rates, term deposits, and returns on net worth are included in this regime.
Nil return on the CRR (Cash Reserve Ratio)–
MCLR does not provide interest on reserves held by banks and financial institutions at the Reserve Bank of India (RBI).
Operating costs –
Operating costs are important factors in determining the MCLR. These are the run-of-the-mill operating costs that banks bear.
Tenure Premium –
It represents the possibility of charging higher interest rates for long-term loans.
This is the major difference between MCLR and the base rate.
There are differences between the MCLR and base rate systems. The main difference between the MCLR and the Base rate is how marginal cost is calculated. To determine the marginal cost under the base rate system currently in place, a simple average of the interest rates on bank deposits was taken.
As a result of the new MCLR regime, the interest rates are calculated as follows:
In the case of the Base rate system, the Repo rate (Repurchase option) was excluded from the marginal cost. According to the RBI, it demonstrates that the new loan interest rates are directly related to periodic changes in the repo rate.
While calculating the costs, banks also consider a number of other minor interest rates. A monthly revision/refixing of the MCLR rate is required under the calculation system employed. The calculations for this regime include the cost incurred by the bank to arrange deposits.
In what loans/credits does the MCLR apply, and which are exempt?
Since April 1, 2016, the MCLR rate has been applied to all loans with a floating rate (changing) and approved after that date. Those with existing loans can change to the new rate. MCLR applies to the following loans:
- Home loans
- Loan against house property
- Corporate term credit/loan
Do people often wonder what the full name of MCLR is? A margin cost of funds based lending rate is known as MCLR. The banks used to charge interest based on the ‘Base Rate’ before the MCLR was introduced. That was the lowest interest rate the banks could offer. Banks could not extend loans below the base rate, which was the rate below which they could not lend.
- RBI introduced the MCLR or Marginal Cost of Fund-Based Lending Rate system in April 2016 to determine the interest rate on credit granted. After April 1, 2016, all loan disbursements and credit limit renewals will be based on the MCLR, said the Reserve Bank of India. For extending credit and home loans, banks now use the MCLR as their internal benchmark rate.
- MCLR is also the indicative rate of floating rates.
- There are only one type of MCLR: floating rate mortgages. Because the MCLR does not affect the home loan if you pick one with fixed interest rates. A change in repo rate determines whether you gain or lose with the MCLR.
- Currently, interest rates for home loans are declining. Hence, switching to MCLR can benefit you if you are planning to buy a house and wish to take advantage of the MCLR related benefits.
- ACCORDING TO PIYUSH GUPTA, MANAGING DIRECTOR, CAPITAL MARKETS INDIA, COLLIERS INTERNATIONAL, the RBI maintained the rates unchanged as expected and kept the door open for future rate cuts. A demand spur will be determined by rationalising personal income taxes for growth in demand.
- Developers and financiers will benefit from allowing one-time one-year extensions of Project Loans for Real Estate Sector since it will enable developers to complete projects and financiers to avoid being classified as non-performing.”
- To reduce the interest burden on a home loan under MCLR, you should not expect your EMIs to drop immediately after the RBI cuts its repo rate. Instead, develop a systematic partial prepayment plan.
- Prepayment of the home loan results in more cash flow and equity once the loan is repaid.
- Existing home loan customers will not see an immediate impact from the MCLR rate cut.
- The reset period for your home loan is either six months or one year, but it will affect the EMI for new borrowers.
- The new borrowers’ home loan EMIs will be lower.
- The decrease in MCLR also explains why the rates on fixed deposits might change.
- It is important to remember that MCLR linked home loans will only be applied to borrowers who have taken their loan after April 1, 2016, and before October 1, 2019. No decision will affect you immediately after the one year reset period is over.
Property in Jodhpur:
There is an advantage to Jodhpur over other major cities in that its land and property prices are lower. Jodhpur’s average property price is 51.75 lakhs INR, substantially lower than that of Delhi (73.46 lakhs INR) and Gurgaon (90-95 lakhs INR).
Over the last few years, however, the property in Jodhpur has seen a lot of growth.A New Pali Road villa that was sold in 2009 for 23 lakhs is being sold today for 75-80 lakhs on the resale market, an impressive increase in price.