In 2026, the key difference remains: the Base Rate is linked to the average cost of funds and changes more slowly, while MCLR is based on the marginal (incremental) cost of funds and is more responsive to the RBI’s repo rate. As a result, MCLR is more transparent and transmits rate cuts to borrowers faster. However, Base Rate loans offer greater stability due to slower EMI adjustments, whereas MCLR-linked loans may require better budgeting because of quicker rate changes. Explore the key differences in this blog.
Base rate vs MCLR
Base rate and MCLR are two benchmarks for setting home loan interest rates. Read on further, to understand their differences and how they impact housing loan rates.
The difference between base rate and MCLR
Both MCLR and base rate are based on the same principles; however, the home loan base rate is based on the average cost of funds, whereas the home loan MCLR rate is based on the incremental/marginal cost of funds. The base rate is calculated by considering the minimum rate of return or profit margin. MCLR rate is calculated by considering the tenor premium.
Operating expenses and expenses necessary to maintain the cash reserve ratio also govern base rates. Deposit rates, repo rates, operating costs, and the cost of maintaining the cash reserve ratio govern the MCLR rates.
Should you switch your home loan from base rate to MCLR?
MCLR rates are more conducive to changes in policy rates, and home buyers find the introduction of MCLR home loans very convenient and simple. You can switch to an MCLR-based home loan to enjoy attractive home loan interest rates.
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How to switch base rate home loan to MCLR
Switching a home loan base rate to a home loan MCLR rate is a simple process. However, you must thoroughly research the cost of the transfer and list your actual benefits. Depending on the lender, the cost of switching may vary between Rs. 5,000 to Rs. 20,000.
Some lenders may offer better home loan interest rates than your current one. In such cases, you can carry out a home loan transfer as well.
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