How much do new base rates actually help?

The introduction of base rates by the Reserve Bank of India, has delighted takers for home loans. If bank rates are linked to the base rate, a lot can be saved on the loan. If you wish to shift to the base rate, you can do so by applying to the bank. RBI is bringing out another rule which would prevent banks from charging any fee for the shifting.

1. Base rate

The base rate is a more logical interest rate system that can be calculated systematically. This will allow borrowers to understand the interest rates more clearly. It will become easier for them to compare rates of different banks and understand which is offering a better interest rate. However, this may not lower the interest rate for all borrowers. Big corporate institutions may find their loans to have higher interest rates.

2. Some home loan borrowers may not benefit

Shifting to the base rate may not help all the home loan borrowers. If you have taken a home loan with a dual rate system, it may not be a good idea to shift to the base rate. The dual rate home loan system allows you to work with a loan repayment plan as then, you need not worry about the shifting in interest rates.

3. To shift or not to shift

If you are at an early stage of your loan term, you can stick with your current plan. The interest rate will be the same as the base rate too. However, if you feel that the future prospects with the other option are brighter, you can shift to the other rate. People who are in middle of the tenure must think of shifting to the base rate. It will allow them a lower interest rate on the loan. If you are at the end of your tenure, its is best to stick with your current plan. As more than half of the loan is repaid, you may just end up paying more with base rates.

4. What you need to do      

As per experts, you must shift to the base rate. You will then have a clearer idea about the goings on regarding rates. Rate shifting will not be a problem with the base rate.

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