MCLR Rate cut by SBI – what does it mean for your home loan?

Updated on November 27, 20183 mins read
MCLR Rate cut by SBI

(Update March 2018) State Bank of India has cut it’s 1 Year MCLR (Marginal Cost of Lending Rate) benchmark rates by 90 basis points. This means that the new home loan rate at SBI is now 8.60% for women and 8.65% for others. Let’s see how this impacts different categories of home loan borrowers. Update: SBI’s current 1 year MCLR is at 8.15%. Under a special scheme, SBI is offering its term loan and Hamara Ghar products at 8.40% (for loans less than Rs.30 Lakhs). After March, this will go up to 8.55%. There is an on going discount of 0.05% for women borrowers.  

New home loan borrowers

oilseed-rape-383279_1920If you are taking a loan from SBI after January 1, 2017; congratulations on saving a lot of money! This is the rate that applies for you. If your loan was sanctioned earlier but not yet disbursed, this new rate will apply instead of the rate mentioned in the sanction letter. If you are taking a home loan from another bank – good news is around the corner for you too. All major banks and housing finance companies are expected to cut their rates too. You can read our review of SBI MaxGain home loan and SBI flexi pay home loan product. We have also answered a number of customer queries on SBI MaxGain home loan.

Existing customers of SBI

This rate cut does not lead to an automatic cut in your interest rates. Your loan could be on the older base rate or MCLR rate of an earlier month. The base rate has been cut only 5 basis point to 9.25%. The MCLR system does not a have a provision for cuts as the rate resets every year automatically. If your loan is on the older base rate system, you must ask for a move from base rate to the current MCLR system and get the benefit of over 1% drop in your interest rate. However, this will cost you 0.58% of your current outstanding amount if you have a term loan. It will cost 0.58% of the drawing power in case of MaxGain home loan.

  Similarly, loans on MCLR of an earlier month have an option to reset the rate by paying a fee which is approx 0.58% of your current outstanding amount. The amount you save depends on the month in which you took the loan. For eg, a loan taken in April 2016 will reset to the MCLR of April 2017 automatically and hence the amount saved would be only for three months. But, a loan taken in December 2016 will reset automatically in December 2017 and hence the savings would be of 11 months.

Customers of other banks

Other banks are likely to follow SBI and announce their cuts as well. However, the same logic of old base rate/old MCLR applies. You would need to look at a reset on your loan or if there is significant gap between the rates; you should consider switching to SBI. So, please wait for a couple of days and then check out your options on the SwitchMe calculator.

Customers of Housing Finance Companies

Housing Finance companies borrow from banks and markets. As rates go down, their costs will also go down and they will cut rates in the coming days. However, unlike banks they are not on a predictable base rate/MCLR systems. Therefore, please check your loan details online or via a call and find out your rate of interest after a few days. Once you know your revised rate of interest, use the SwitchMe Calculator to find your options.

  On the whole, the rate cut by SBI is welcome news. Other banks and housing finance companies will announce their rate cuts in the coming days. As the dust settles down, you would need to consider your options and follow one of the strategies listed above. For personalised set of options, sign up for a free call with one of our Home Loan Advisors.


Aditya Mishra

Aditya Mishra

Aditya has a Post Graduate Diploma in Finance and strategy from IIM Bangalore. He comes with rich experience in the field of strategic investments, venture capital and technology. During his nearly 7 year stint at TCS, Aditya gained deep experience in start ups and exploring new technologies and business models. As director innovation partner Network, Aditya identified start ups with innovative technologies and incubated them to maturity. Aditya's deep understanding of upcoming ubiqutous computing trends helped TCS make strategic investment decisions in this area. As head of sales West India, Aditya spear headed new collaborations for TCS in the banking and financial services space. With a zest for start ups and new innovations, Aditya co-founded Headstart Netwrok Foundation in the year 2007. This is a non profit organisation that promotes entrepreneurship. Aditya founded SwitchME in the year 2012. SwitchME was a pioneer in the field of specialised home loan advisory, conveniently based on an online platform. Today SwitchME has helped over 1000 customers with new home loans and balance transfers right at their doorsteps.
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