Mclr – A Primary Factor In Determining The Interest Rate Of Your Home Loan

An MCLR is a prime factor that affects your home loan interest rates. Given below is a brief outline of MCLR and how it impacts the home loan interest rate.

What is MCLR?

Marginal Cost of fund based Lending Rate (MCLR) is the benchmark rate which is the lowest percentage a lender is allowed to charge while sanctioning advances. An MCLR is dependant on the repo rate published by RBI (Reserve Bank of India).

How MCLR affects interest rates on a home loan?

Financial companies add a spread over the MCLR and decide interest rates of a home loan. There are two types of interest rate that you can choose from – 

  1. Fixed interest rate: Individuals opting for a fixed rate enjoys unchanged rate of interest irrespective of the changes in MCLR. Your EMI amount stays the same throughout the tenor allowing you to plan your finances in advance.
  2. Floating interest rate: These types of rates are suitable for individuals having a high risk appetite and knowledge of the volatile market. Floating interest rates change as and when there is a change in MCLR. You can enjoy the lowest home loan interest rate when there is a drop in the MCLR. 

How to get affordable EMIs depending on MCLR?

Depending on the effects of MCLR on loans you can make your EMIs affordable by implementing the below mentioned factors – 

  • Increase your loan tenor. 
  • Make pre-payments to lower the principal sum.

You can calculate your interest rate based on your loan tenor and MCLR. Also, consider the loan amount to determine the interest rate.


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