With the RBI introducing the benchmark Prime Lending Rate (PLR), all banks and non-banking finance companies are offering the PLR rate in India. Banks, with the approval of their respective boards, apply PLR home loan uniformly across all their branches. They determine the interest rate on all different loans in reference to BPLR.
Banks express prime home loan interest rates by using spread and PLR. Therefore, the sum of Prime Lending Rate and spread becomes the home loan interest rate. The spread can be positive or negative, but remains a constant throughout the loan. Therefore, changes in BPLR (Benchmark Prime Lending Rate) can affect the floating rate of interest for a home loan. Loans with a fixed rate of interest are not affected by PLR. However, changes in PLR affect home loans with floating rates.
Once a borrower takes a loan, PLR changes alone affect the interest rate. The borrower has to start worrying about his home loan interest rate when it goes down more than the decrease in home loan PLR rates. Changes in spread affect only the home loan interest rate of a new customer.
Conversion can change the spread. For this, the borrower has to convert his home loan from an old scheme to a new prevailing scheme.
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