Good News For Homebuyers As The SBI Home Loans Get Cheaper

State Bank of India recently announced a piece of good news by reducing its lending rates. The giant commercial lender in the country reported having cut its lending rates by 10 basis points across tenors. The new rates came into effect from Tuesday, September 10, 2019.

Earlier, one-year MCLR (marginal cost of funds-based lending rate) stood at 8.25 per cent. After the reduction in lending rates, it stands at 8.15 per cent.

What is MCLR?

The Reserve Bank of India introduced the MCLR methodology on 1st April 2016. Meant for fixing interest rates, MCLR then replaced the base rate structure, which was functioning since July 2010.

MCLR or Marginal Cost of Funds-Based Lending Rate is the minimum interest rate that a bank can lend at. It is a tenor-linked internal benchmark, which allows a bank to determine the rate internally, depending on the period left for the repayment of a loan.

The methodology of MCLR is closely linked to the actual deposit rates. It is calculated based on four components:

• The marginal cost of funds

• Negative carry on account of cash reserve ratio

• Operating costs

• Tenor premium

All banks in India are free to offer all categories of loans on fixed or floating interest rates. The loans of different categories and tenors linked to MCLR and their lending rates cannot go lower because the components of MCLR doesn't allow to do so. 

The home loans by SBI are now cheaper

The home loan rates by SBI go up to INR 75 lakh. Depending on the profile of the borrower, the interest rate range is between 8.25 per cent and 8.80 per cent.

Earlier, the same interest rate range was between 8.35 and 8.90 per cent. 

As per the latest updates on SBI's website, the table below shows the revised SBI's tenor-wise MCLR, with effect from September 10, 2019:

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The marginal cost of funds-based lending rate (MCLR) of SBI after revision now comes on the back of the Reserve Bank of India. The Repo Rate based on which the central bank lends money to commercial banks as the interest rate is observed to have 1.1 per cent point reduction so far this year. 

To understand the revision process of SBI, take INR 30 lakhs amount, for instance. The EMI for a housing loan which previously stood at 8.35 per cent interest resulted in the payment of INR 29,279. The EMI is now INR 29,104 after the revised 8.25 per cent interest rate. And the total reduction in your interest payable over the loan term amounts close to INR 31,500.

On the other hand, SBI has reduced its fixed deposit (FD) interest rates. This reduction of FD rates across tenors in the retail segment by the bank is by 20-25 basis points. The bulk segment witnesses a reduction of FD rates by 10-20 basis points.

The existing home loan customers could face a slight disappointment. They may have to wait for some time to enjoy the benefits of revised rates because of the reset clause. The reset clause allows availing the benefits after waiting for at least one year from the reset date.

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