Understanding MCLR before availing home loans
Vacation season at Middle East is the time whenmost of the NRIs visit India. A lot of their investment decisions like purchasing of plot or house or flat are taken during these visits. As most of the NRIs are looking at house property as an investment option Cochin has always been a favourite market for them. Every year during these times I get calls from my NRI friends seeking information about the real estate prices, availability, development activities happening in and around Cochin,the progress of Cochin metro etc. Few who are closer even ask me to accompany them during site visits and initial talks with the builder.
This year also a few weeks back one of my classmates was on the lookout for a flat in Cochin and he wanted me to accompany him. We were quite happy with the property we saw. The price seemed to be a little out of the market. More importantly, it was overshooting his budget. After tough negotiations, the builder agreed to reduce the price and for managing the liquidity even offered to arrange housing loan from a bank for him. The deal was almost done and my friend was very happy.
A few days later I received a call from him at early 6 in the morning. He started mentioning about the flat property and then said: “Boss I want an expert advice”. I replied; “I am a banker and not a real estate agent who can provide you expert advice on property deals”. He replied “I know you are a banker and that is why I am calling you. I want your expert opinion on how interest rates will move”. Wow!! What a great topic to discuss while you are still half asleep and lying on bed!! I hang up the phone saying I will call back later.
As promised I called him later during the day to find out why he was keen on knowing about how interest rates will move. He said that the builder had introduced him to few banks and housing finance companies. Bankers have been canvassing him saying that as banks have now moved to MCLR regime it would be beneficial for him to avail the housing loan from banks. The housing finance companies, on the other hand, had mentioned to him that interest rates have already reached the lowest ebb, real interest rates are negative even now and thus reversal in trend could happen anytime. They cautioned him that if reversal of interest rate happens then MCLR regime would be disadvantageous to him and thus it is better to avail loan from HFC. Confused and perplexed he had called me basically to help him make a choice. I mentioned that these are really complicated topics which cannot be explained over the phone. So we agreed to meet during theweekendand following is the gist of what we discussed.
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