The erstwhile regime of lending is Base Rate. Base Rate is the minimum rate of interest on Home Loan that a lender can charge a borrower on loans. This rate is decided by RBI for all banks, and other lenders. The Base Rate depends upon the average cost of funds over a certain period of time. As a result of which the cost of funds did not change much. There was a shortcoming to this regime as when the RBI cut the base rate the lenders did not pass the advantage to the borrowers or took its time. That is one of the reasons why RBI has done away with Base Rate.
Recently RBI has introduced a new lending regime called Marginal Cost-of-funds Lending Rate or MCLR. Lenders use it as a standard rate for Home Loans to new borrowers. MCLR has to be reviewed every month. It is directly proportional to marginal cost of funds, operational costs, Cash Reserve Ratio or CRR, and tenure premium. Any change in the above factors will influence the MCLR
Now you know about MCLR and Base Rate and how MCLR is better than Base Rate. If you like to change from Base Rate to MCLR you can always do it. All you have to do is pay a fee to the lender. Refinancing is another option you can consider.
There is a lot more about MCLR and its benefits here:
Aman Khanna is an experienced financial advisor who is well known for his ability to foretell the market trends as well as for his financial astuteness. He has an MBA in finance from Toronto University as well as years of experience delivering seminars on sound financial practices and debt management.