Why EMI is Increasing when Repo Rate and MCLR are Falling?

MCLR or Marginal Cost of Funds based Lending Rate aimed to set a fundamental uniformity in the lending rates, which is especially beneficial in cases of high-value loans or secured advances.

In an attempt to slacken, regulate and enhance the financial lending industry in India, multiple measures have been deployed by the government to facilitate convenient financing options for all.

In an attempt to slacken, regulate and enhance the financial lending industry in India, multiple measures have been deployed by the government to facilitate convenient financing options for all. One such endeavour was to set an internal benchmark for the interest rates followed by diverse financial institutions. Subsequently, the Reserve Bank of India introduced a new financial tool - Marginal Cost of Funds based Lending Rate. What is MCLR? MCLR or Marginal Cost of Funds based Lending Rate aimed to set a fundamental uniformity in the lending rates, which is especially beneficial in cases of high-value loans or secured advances. It intended to –

• Bring in transparency in the way to determine the rate of interest.
• Improve transmission of policy rate into the lending rate of interest.
• Ensure availability of financial aids at rates which are fair both for on the part of a lender as well as a borrower.

Taking these benefits into account, post-April 1, 2016, the best home loans in India are linked to MCLR below which lenders cannot offer advances. Financial institutions keep a nominal spread over this MCLR to determine their lending rate. MCLR and Housing advances In case of housing loan interest rates are comparatively lower, MCLR based home loans bring in further transparency. Secured loans come with a lowered interest rate owing to the reassurance of repayment via liquidation of a mortgaged asset in case of defaults. Following this, lenders are less stringent about required eligibility criteria, credits score, and furnishing of essential documents. Effect of MCLR on EMI of advances Considering that MCLR of loans are subjected to changes and are in accordance with the repo rate announced by the RBI, this benchmark rate often undergoes slight alterations in terms of basis points. Calculating MCLR requires consideration of its main components which include –

• Tenor premium
• Operating cost
• The marginal cost of fund
• Negative carry on account of CRR or Cash Reserve Ratio

Following this, lenders offering the best home loan in India calculate their rate of interest by adding up MCLR and a mark-up that best suits their financial interest. Now, the amortisation process to calculate EMI includes both principal and interest amount compounded in reverse direction. Thus, the lowered rate of interest must reduce monthly instalments. This MCLR Rate and its effects on loans should also lead to slashing down of the cost of credit. However, considering that MCLR on housing loan interest rate comes with a reset clause of 6-12 months during which MCLR may be subjected to further alteration, the effect on EMIs is often postponed. Hence, despite a decrease in repo rate and MCLR, various NBFCs are often reluctant to impose changes in its lending rate with immediate effect. Thus, approaching reputed lenders who comply with MCLR changes and offer a competitive rate of interest is essential to avail the benefits of a lowered total cost of loans. Following this, borrowers can choose between going for –

• Fixed-rate of interest in case MCLR hits an all-time low.
• Floating rate of interest in case MCLR is higher.

Approaching reputed financial institutions like Bajaj Finserv and availing their Home Loan helps borrowers gain convenient access to such options of the interest rates.  The advances come with lucrative features that include –

• High-value loan amount of up to Rs. 3.5 Crore.
• Attractive rate of interest.
• Easy balance transfer facility.
• Top-up loans.
• Minimum eligibility criteria.
• Nominal documentation.

While these NBFCs provide borrowers with benefits to calculate their monthly instalment via home loan calculator, they also bring you pre-approved offers that ease the application process to avail financial assistance. These offers are available on several financial products that include both secured advances like home loans, and unsecured credits like personal loan, business loan, etc. You can take a look at your pre-approved offers by providing a couple of essential details like your name and contact details. Therefore, while the best home loan in India offers its borrowers with adequate financing to purchase a house, choose one that alters its rate of interest in immediate effect with MCLR. It helps ensure a lower cost of a loan and hence more affordable housing financing options. Powered by Bajaj Finserv