Home loans taken before April 2016 now cheaper

Consumers who took home loans before April 1, 2016, will pay lower interest rates from Sunday.

This is because of commercial banks shifting to a new methodology of setting interest rates, based on the directives of the Reserve Bank of India (RBI).

Under the new system, interest rates on all floating rate loans will be reset in tandem with the change in repo rate by the RBI. Also, they will be reviewed every month instead of three months under the old system.

The lending rate based on the new methodology - MCLR or marginal cost of funds - is lower by 5 to 50 basis points when compared to the base rate.

The MCLR based lending rate is closely linked with the repo rate. Hence it ensures better transmission of the RBI's rate cut to the borrowers.

"There will no arbitrary decision by banks on interest rates for loans anymore," a bank official told DH.

MCLR came into effect on April 1, 2016. All loans taken before that were based on base rate. Loans taken after April 2016 became automatically linked to MCLR.

For old borrowers, there was an option to shift to the new system after paying some loan transfer cost to the lender. However, 30%-40% loans were still based on the old base rate.

In February, the RBI asked all lenders to link their base rate with MCLR after it noticed weak monetary transmission by banks and loss to borrowers.

"Since MCLR is more sensitive to policy rate signals, it has been decided to harmonise the methodology of determining benchmark rates by linking the Base Rate to the MCLR with effect from April 1, 2018," the RBI said.

However, borrowers of car and other personal loans will not benefit as these loans are given on a fixed rate of interest, with an exception of one or two private sector banks which extend car loans on floating rate of interest.

Imported smartphones and smartwatches became expensive from Sunday as the Union Budget had increased customs duty on them to 20% from the earlier 15% and 10%, respectively.

Imported diamond jewellery, silk fabric, packaged juices and make-up kits, too, became expensive.

But cashew and leather goods have become cheaper.