Home Loans: Existing borrowers cannot immediately avail of lower interest rates
Moneylife Digital Team 17 May 2017
Here is good news for new borrowers of home loans as they can now get lower interest rates, with several lenders having reduced the rates. However, for existing borrowers on floating rate basis, there is no immediate respite, as they will have to wait for the next reset date for the marginal cost of funds based lending rate (MCLR). In addition, they may have to pay certain charges to lower their interest rates for home loans. 
Several prominent banks, including State Bank of India, the country's largest lender, ICICI Bank, HDFC Bank, Bank of Baroda and Bank of India have reduced the interest rate on home loans of up to Rs30 lakh, to 8.35%. However, this is applicable only for salaried women borrowers. Other borrowers will have to pay 8.40% interest on home loans of up to Rs30 lakh.
Last year the Reserve Bank of India (RBI) issued guidelines on MCLR, which is a tenor-based benchmark rate. Banks are required to review and publish their MCLR for different maturities every month on a pre-announced date. 
However, the same tenor-based clause is preventing existing borrowers from getting the benefit of lower interest rates. When one of our readers approached his bank for reduction in interest rate for his home loan, he was told "...MLCR is revised on annual basis, so no changes can be done before that."
This is as per the guidelines issued by RBI. For a borrower, the guidelines say, the MCLR prevailing on the day the loan is sanctioned will be applicable till the next reset date, irrespective of changes in the benchmark rates during the interim period. 
For example, if the bank has given a one-year reset period in the home loan agreement, then the borrower will continue to pay interest on the same rate till next reset date. If she had taken home loan at 9.5%, then even if the interest rate comes down to 8.35%, she cannot get the benefit and will have to wait for the next reset day and pray that the reduced interest rate prevail on that day.
Here are the new interest rates of some banks for the salaried
Sunil Prakash
5 years ago
Its high handedness on the part of the banks not to pass on the new benefits to the old borrowers when it is clear that the interest rates are on flexible terms. They will increase interest immediately , but do not reduce it. RBI and Ministry of Finance should intervene. Ministry of Consumers affairs is Nipunsukh as they sit tightly when infact in the interest of the consumers they should jump and supervise and control the working of banks.
Sunil mule
5 years ago
I am apply now
manish vora
6 years ago
Dear team, existing borrowers are not passed on benefit of reduced interest rate but the article provides incomplete information. NHB circular of 2009 is not followed by leaders, still NHB being watchdog is silent.
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