Switch your home loan from BPLR to base rate is beneficial
How will shifting help?
If you had applied for a home loan before 1 July last year and it hasn”t been renewed since then, in all likelihood, the interest on your loan is still based on BPLR. It has now been a year since the Reserve Bank of India directed banks to move from the BPLR to base rate as the benchmark interest rate for loans granted after 1 July. No banks are allowed to lend below this base rate.
“If you have taken a loan just after 1 July, ensure that your bank has linked your rate to the base rate. This is applicable for clients who have borrowed before 1 July,” suggests Vipul Patel, director, Home Loan Advisors, an independent mortgage consultancy. While borrowers may not find immediate relief in shifting to the base rate, they can benefit later when the rates start to drop because these will fall faster than those linked to the BPLR.
This is because base rate is more transparent then BPLR. If the interest rates fall, banks will have to lower the base rate, which is a function of the cost of funds in the market. As all the variable rates of interest are pegged to the base rate, the borrowers will gain from any cut in this rate. Hence, it is advisable to opt for it. “If you are one of the old borrowers who had taken a loan around 2006, right now you might be paying 13-14% on your home loan.
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If your home loan rates doesn”t come down immediately after shifting to the base rate, don”t worry. It will the moment the RBI decides to reduce rates. However, the BPLRlinked home loan rate may not fall. “Under the benchmark prime lending rate, banks increase these when the rates are going up, but do not reduce these when they go down.
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