There is good news for the borrowers paying EMIs on home loans from the State Bank of India (SBI). The SBI has announced a reduction in its 1-year MCLR by 10 basis points. SBI home loan is linked to the 1-year MCLR of the bank which will stand at 7.90 per cent from December 10, 2019. The cut in the MCLR will benefit those who are paying EMIs on home loans linked to the bank’s MCLR. This is because they will now have to pay a lower EMI or will have the tenure of the loan reduced because of a lower rate of interest. The cut in MCLR will also mean lower interest burden for the borrowers.
In December 2018, SBI 1-year MCLR was 8.5 per cent, while in December 2019, it has come down to 7.90 per cent, a fall of 60 basis points. The actual effective home loan interest rate of SBI will, however, depend on the loan amount and other factors. The benefit of the cut in MCLR will be immediate to those who have their loan reset date coming up in December. This is because MCLR loans have a reset period of 12 months when the home loan interest rate is reset again as per the prevailing MCLR of the bank.
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Let us how a 60 basis points or 0.6 per cent cut in home loan interest rate impacts your EMI and total interest cost.
Assuming one takes a home loan of Rs 30 lakh for 15 years, the savings in EMI and interest will be:
EMI Saved-Rs 1,045 ( Annually Rs 12,542)
Total interest saved-Rs 1.90 lakh
The actual savings will depend on the tenure and the loan amount and any further revision in the MCLR. The bank may either reduce EMI or reduce the tenure of the loan to pass on the benefit of lower MCLR.
As existing home loan borrower on MCLR linked loan, the option is to shift to RLLR home loan. Since October 1, 2019, all banks have been asked to lend only at an interest ate linked to an external benchmark such as RBI repo rate. The banks will continue to disclose and publish the MCLR for the borrowers with loans linked to MCLR. For those who had taken loan post-October 1, 2019, the bank’s repo linked lending rate (RLLR) will matter. Under RLLR, the transmission is expected to be faster and any revision in RBI repo rate will have to be passed on at least once in three months.