What is the impact of MCLR on housing loans?

The MCLR (Marginal Cost of Funds Based Lending Rate) has a direct impact on housing loans as it serves as the benchmark rate for determining the interest rate on such loans. Here are a few key impacts of MCLR on housing loans:

1. Interest Rate: The MCLR determines the interest rate that is charged on housing loans. Banks typically add a spread or margin over the MCLR to arrive at the final interest rate for borrowers. As the MCLR changes, it directly affects the interest rate on housing loans. When the MCLR increases, the interest rate on housing loans also tends to increase, leading to higher borrowing costs for borrowers. Conversely, when the MCLR decreases, the interest rate on housing loans may decrease, resulting in lower borrowing costs.

2. EMI and Loan Tenure: A change in the interest rate due to a revision in the MCLR can impact the Equated Monthly Installment (EMI) amount and the overall tenure of the housing loan. If the interest rate increases, the EMI amount may go up, and if the interest rate decreases, the EMI amount may decrease. Alternatively, lenders may adjust the loan tenure instead of changing the EMI amount, meaning that a higher interest rate may result in a longer loan tenure, and a lower interest rate may result in a shorter loan tenure.

3. Loan Eligibility: The MCLR can also impact the loan eligibility of borrowers. If the interest rate increases due to an increase in the MCLR, it may result in higher EMIs, which could reduce the loan amount that borrowers are eligible to avail. On the other hand, a decrease in the interest rate due to a decrease in the MCLR may increase the loan eligibility for borrowers, as it reduces the burden of EMIs.

It's important for individuals seeking housing loans to monitor the MCLR and understand its impact on the interest rate and overall cost of borrowing. It's also advisable to compare loan offers from different lenders and consider factors beyond the MCLR, such as processing fees, prepayment penalties, and customer service, to make an informed borrowing decision.