The MCLR (Marginal Cost of funds based Lending Rate) system, which was launched in 2016, lead to a major change in the financial sector, especially for Home Loan subscribers. This is so because with the MCLR came the Home Loan balance transfer facility. Now, of your housing loan was approved before 2016, you would probably remember the interest rates were pretty high compared to the present rates. Presently, the Home Loan rates stand at 8.60% p.a onwards. On the contrary, if you look at the rates before 2016, the base rate by the RBI was 10% p.a in 2012 till 2014. Towards the end of 2015, the base rate by the RBI stood at 9.75% per annum. From the above-mentioned figures, it becomes very evident that people subscribed to base rate schemes were paying higher interest towards their loan compared to people subscribed to MCLR rate schemes.
Needless to say, it wasn’t justified for the people who got approved for a loan before 2016. Hence, the government offered them the flexibility to switch their housing loan from base rate to MCLR rate and save their money. In addition to that, the Home Loan balance transfer facility is a lucrative option for people subscribed to high-interest rate housing schemes. They can opt for the balance transfer facility and get their purchase refinanced at a reasonable rate.
Apart from that, you can opt for the balance transfer facility for;
- You can keep a higher rate of interest at bay
- Receive better customer service
- Receive incentives such as top-up loan facility from the new lender.
In the end, every decision has its pros and cons. Hence, consider all the pros and cons before taking the final decision.