Almost a month after the Reserve Bank of India (RBI) reduced the repo rate by 25 basis points (bps) in February, banks have started revising the marginal cost of funds-based lending rate (MCLR) downwards, though marginally. MCLR is the lowest possible interest rate that a bank can charge for a home loan, and one bps is one-hundredth of a percentage point. Since 1 March, banks, including Punjab National Bank, Bank of Baroda and Kotak Mahindra Bank, have reduced their MCLR for various tenures by 5-10 bps. More rate cuts may follow in the next few months, with RBI expected to cut rates in its forthcoming monetary policy review in April.
As more banks cut MCLR rates, you may get tempted to switch to a home loan that costs less. However, a reduction in rate may not always mean you will save in terms of overall costs. So do a cost-benefit analysis to ensure the switch benefits you in the long run.