Home Loan Interest Rates

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About Home Loan Interest Rates

home loan interest ratesHome Loan Interest Rates are the main factors to consider before availing of the housing loan. When people secure the lowest Home Loan Interest Rates, it reduces the overall cost of housing loans and minimizes monthly payments. Homebuyers should consider various factors, like interest rates, fees, and terms, to procure the best home loan.

Home Loan Interest Rates – Updated 2020

Bank Interest Rate Processing Fee
HDFC Bank 6.95% onwards (Linked to RLLR) Up to 0.5% of the loan amount or Rs. 3,000, whichever is higher
ICICI Bank 8.65% (Linked to RLLR) 0.50% – 2.00% of the loan amount or Rs. 1,500 (Rs. 2,000 for Mumbai, Delhi & Bangalore), whichever is higher, goods and service taxes are also applicable.
Axis Bank 7.45% onwards (Linked to RLLR) Up to 1% of the loan amount (Min. Rs. 10,000)
Bank of Baroda 7.25% – 8.25% (Linked to RLLR) Up to Rs. 50 lakh: 0.50% of loan amount (Min. Rs. 8,500 & Max. Rs.15,000)
    Above Rs. 50 lakh: 0.25% of loan amount (Min. Rs. 8,500 & Max. Rs. 25,000)
Canara Bank 6.90% onwards (Linked to RLLR) 0.50% of the loan amount
Central Bank of India 6.85% onwards (Linked to RLLR) 0.50 % of the loan amount
DHFL 8.75% onwards (Linked to RLLR) For Salaried/Self Employed Professional – 0.5% of the amount (Min. Rs. 2,500)
    Self Employed Non-Professional – Net PAT: 0.5%, Others: 1.5%
Federal Bank 7.90% – 8.09%  0.50% of the loan amount (Min. Rs. 3,000; Max. Rs. 7,500) 
YES Bank 8.85% -13% (depending on the type of loan you choose) 2% of the loan amount or Rs. 10,000, whichever is higher
PNB Housing Finance 8.60% – 9.45% (Linked to PNBHFR) Up to 0.25% (Max. Rs. 15,000)
State Bank of India 6.95% onwards (Linked to RLLR) 0.35%  of loan amount (Min. Rs. 2,000;  Max. Rs. 10,000)
IDBI Bank 7.40% – 8.40%   0.50% of the loan amount (minimum ₹ 2,500 and maximum ₹ 5,000)
Bajaj Finserv 7.5% onwards (Linked to BFL FRR) For salaried individuals: Up to 0.80%
    For self-employed individuals: Up to 1.20%
Bank of India 6.85% – 7.75%  0.25 % of loan amount (Min. Rs. 1,000; Max. Rs. 20,000)
IIFL 8.70% onwards (Linked to PLR) Up to 1.75% of the loan amount
Indiabulls Housing Finance 8.99% – 9.75%  Up to 1% of the loan amount
India Shelter Finance Corp. Ltd. 13.00% onwards 2% – 3% of the loan amount 
Indian Overseas Bank 7.05% onwards (Linked to RLLR) Up to 0.50% of the loan amount
Kotak Mahindra Bank 7.35% onwards (Linked to MCLR) Up to 0.5% of the loan amount 
LIC Housing Finance 8.55% onwards (Linked to PLR) Rs. 10,000 for loan up to 50 Lakhs and Rs. 15,000 for loan above 50 Lakhs and up to 3 Crores.
Punjab National Bank 7.10% onwards (Linked to RLLR) 0.35% of the amount 
Standard Chartered Bank 7.99% onwards Up to 1% of the loan amount
Tata Capital 8.50% onwards (Linked to RPLR) 0.5% of the loan amount

Tips for availing best home loan interest rates

  • Determine the loan type: Home Loan Interest Rates is the main consideration while comparing the Home Loan Interest Rates. Fixed and adjustable rates are the two various categories of the interest rate. People have to consider the rate according to their requirements, but the fixed rate is the best option to choose.
  • Credit Rating and Financially Stability: Various lending institutions assign the interest rate on the basis of the credit score of the consumers. Consumers who have a high credit rating score will get low housing loan interest rates. Find and compare interest rates through online tools of comparison, which permit borrowers to compare rates of different financial institutions.
  • Fees and Charges: Various lending institutions charge fees including settlement fees, appraisal fees, broker fees and loan processing fees. Compare the fees of different lenders before availing the housing loan. Select the loan that provides the lowest Home Loan Interest Rates.

Factors Affecting Home Loan Interest Rates:

There are certain factors that either increase or decrease the housing loan interest rate in India significantly. These factors are as follows:

  • Income – First and foremost, your income is the most important factor that determines your interest rate. If you have a fixed, high income then the banks will be willing to lend you a loan at low-interest rates and be lenient with the repayment. 
  • Credit score: Your credit score greatly impacts interest rates on home loans. A credit score is what describes your repayment history. A higher CIBIL score will enable you to avail an easy home loan but a lower CIBIL score would attract a higher interest rate. 
  • Type of interest rate: Home loan rate of interest are broadly of two types – fixed and floating rates. In the case of fixed-rate home loans, EMIs remain constant for the entire loan period, despite changes in the interest rates with time. Floating rates, on the other hand, change as per change in its lending rate (Repo Linked Lending Rate). The interest rates for a fixed-rate are usually 1% to 2.5% higher than for a floating rate.
  • Loan amount: The loan amount you wish to borrow also affects the rate of your housing loan. Interest rates are higher for loans above Rs 30 lakh.
  • Employment Type: Self-employed applicants usually attract a higher rate of interest due to instability of the market, whereas the salaried applicants can avail of home loans at lower rates.
  • Location of the property – Another thing that matters is the location of the property you desire to buy. If the property is in a prime location and is being bought through a trusted agency then your interest rates can be lowered.
  • Loan Tenure – Lastly, the loan tenure affects the interest rates, a longer tenure brings a lower interest rate.

An Effective interest rate (EIR) consists of two components:

  1. The base rate, which remains fixed.
  2. The mark – up rate, which is a small percentage of interest added to the base rate. It varies according to the property. 

Note: Calculate your payable EMI amount in advance using our Home Loan EMI Calculator.

Types of Interest Rates

  1. Fixed interest rates
  2. Floating interest rates
  • Fixed-Rate Home Loan: The loan EMIs remain constant for the Fixed-rate home loans, which means that the rate applicable to the applicant at the time of loan disbursal will remain unchanged throughout the loan tenure, even if the interest rate decreases or increases with time. The rates are usually higher for a Fixed-rate home loan.

The advantage of a fixed home loan rate is that you can know explicitly how much EMI you have to pay, and if the lending rates increase your EMIs won’t be affected. However, the disadvantage is that if the lending rates decrease, you won’t be able to avail of its advantages.

  • Floating-Rate Home Loan: The EMI amount for these home loans alter with changes in the interest rates with time. It comprises of Index and Spread in which Index is the benchmark rate that alters with RBI’s policy changes and Spread remains constant as it is the additional charge that a bank adds to cover up the risk factor.

Again, the only disadvantage here is that if the lending rates increase, you will have to bear the brunt of the increased EMIs.

Fixed vs Floating Interest Rates:

Fixed Interest Rate Floating Interest Rate
Higher Interest Rate Lower Interest Rate
Not affected by financial market conditions Affected by changes in the financial market
Fixed EMIs EMIs change as per interest rate or MCLR
Budget planning possible Difficult to budget or manage financials
Sense of security Generates savings
Suitable for short/medium term (3-10 years) Suitable for long term (20-30 years)
Lesser risk Higher risk

It is always better to make a huge down – payment. Down – payment is the payment you make initially, after which you pay the remaining amount in the form of Equated Monthly Installments (EMIs). The advantage of making a huge down – payment is that it reduces your EMIs and makes it easier for you to repay your loan for the remaining tenure.

Types of Home Loans 

Banks and NBFCs in India provide different types of home loan options according to various needs. Here’s a list of the main types of housing loans availing in India:

  1. New Home Loans: are offered to customers looking to purchase a new house or property for the first time.
  2. Home Renovation Loans: Home loans for renovation are offered to borrowers who wish to renovate/extend their existing house.
  3. Step-up Loans: is when the borrower is given the liberty to pay a lower EMI amount during the earlier days of repayment which gradually increase as the tenure progresses.
  4. Bridge Loan: is a short-term housing financing that helps the borrowers to “bridge” the gap between their existing and new mortgages by allowing them to keep the equity of the current residence as a down payment for buying a new house, waiting for the sale of the old house.
  5. Interest Saver Loan: This allows the borrower to deposit his excess savings in a current account linked to his home loan account. While calculating the interest component, the bank deducts the balance in the current account from the borrower’s outstanding principal.
  6. Home Extension Loan: is a loan that can be availed to extend an already existing residential property by adding space or new rooms to it.
  7. Balance Transfer Home Loan: can be used to transfer an individual’s home loan from one bank to another, looking for lower interest rates. 
  8. Home Purchase Loans: are specifically provided to borrowers seeking to purchase a residential house or flat.
  9. Home Loan for Construction: is offered to customers who are looking to construct a new house on an existing piece of land.
  10. Plot Loans: are loans offered to customers looking to purchase a piece of land or plot for house construction.
  11. Home Loan Top Up: is an add-on facility offered by most banks and NBFCs that allows existing customers to borrow a certain amount above and over the already existing home loan.

Some Basic Tips for A Home Loan

  1. Compare! It is always advisable to compare the lenders and choose the one which can be trusted as well as which can offer you the best deal. This also saves you from fraud. Usually, it is best to borrow from the bank where you already have an account.
  2. Read! It is necessary to read the documents and deals carefully so that you can know explicitly and clearly the terms of the loan. This is something you cannot compromise on as it will save you from future shocks.
  3. Know your rights! It is always beneficial to know about your rights and benefits that you can use for your benefit while availing of a home loan.

How to Get the Lowest Rate of Interest on Home Loans

Certain tips and tricks can save you from paying heavy amounts on your home loans. Provided you follow these practices you can avail the best interest rates in the market.

  • Maintain Excellent CIBIL Score

CIBIL score also known as credit score is an indicator of your creditworthiness. A high credit score reflects responsible credit behaviour and vice-versa. It is also important to note that applicants with a lower credit score will pay higher interest on their housing loans. A higher credit score dictates the efficiency with which you have paid off your previous loans. Having a good credit score will allow you to enjoy certain benefits like availing the lowest interest rates in the market.

  • Have a co-applicant

You can get the lowest housing loan interest rate if you apply for a housing loan jointly with your spouse as a primary applicant of your housing loan amount. Also, certain lenders allow a lower interest rate for women. Availing joint home loan will also increase your home loan eligibility that will enable you to have an easy home loan and also enjoy home loan tax benefits.

  • Consider Availing Home Loan Balance Transfer

A home loan balance transfer is when a borrower shifts his remaining loan balance to a new bank, due to better interest rates or better repayments tenure structure. You can even opt for a home loan balance transfer if your current bank or financial institution is charging a higher rate of interest. You can switch to another bank, which offers a lower rate of interest. But before making the switch, consider the total cost of loan transfer. 

  • Pay off a heavy Home Downpayment

The loan amount is one of the main factors that affect your housing loan interest rate. The higher loan amount usually attracts a higher interest rate and vice-versa. To get a home loan at the lowest possible interest rate, it is advisable to try paying off your loan amount by contributing more towards your home down payment.

FAQ’s About Home Loan Interest Rates 

✅ How is the Home Loan interest rate calculated?

The interest rate of home loans is directly dependent on the repo rate. After adding a margin on the repo rate RLLR is calculated which is used to calculate the home loan rate.

Effective Interest Rate (EIR) = Base Rate + Markup

External Benchmark Rate is the minimum rate set by the Reserve Bank of India as lenders cannot sanction loan to customers below this benchmarked rate. It is subject to frequent changes depending on various inputs and conditions.

Markup: A margin is added above the external benchmark rate to get the Effective interest rate (EIR). The markup may vary from one scheme to another.

✅ What is the tenure of a house loan?

Home Loans are quite long tenure loans that can range from a period from 5 years to 30 years depending on the need of the borrower, his age and his income.

✅ Which is better: fixed or floating rates?

A fixed home loan is a better option as it will secure you from any fluctuations of interest rate in the market. Floating home loan, on the other hand, is a better option when you think that interest rate will drop in the future. Check the basic differences between both these rates:

Fixed Interest Rate Floating Interest Rate
Higher Interest Rate Lower Interest Rate
Not affected by financial market conditions Affected by changes in the financial market
Fixed EMIs EMIs change as per interest rate or MCLR
Budget planning possible Difficult to budget or manage financials
Sense of security Generates savings
Suitable for short/medium term (3-10 years) Suitable for long term (20-30 years)
Lesser risk Higher risk

✅ Can I reduce my home loan interest rate?

If you have a low CIBIL score then there are chances that your home loan interest rate will be lower. Also, some banks offer discounted rates where a woman is the main applicant.

✅ Can I apply for a housing loan co-jointly?

Yes, you can apply for a home loan jointly with an immediate earning co-applicant. Adding a co-applicant will also increase your own eligibility for a better loan interest rate.

✅ Can I avail a balance transfer for a home loan?

Yes, if you are getting a lower rate of interest on a home loan with any other lending institute, then you can easily opt for a balance transfer.

✅ Is a top-up facility available on my existing home loan?

Yes, you can avail the top-up facility on your existing home loan provided that you have made timely repayment of EMIs for the loan tenure so far. 

✅How can I reduce my housing loan EMI burden?

You can easily reduce your home loan EMI burden using the following steps:

  • Transfer your existing loan to another bank offering housing loan at a lower interest rate, known as the home loan balance transfer
  • Increase your home loan EMIs to reduce the total interest payable
  • Pay heavy down payment

✅Can I switch from a fixed rate to a floating rate during my tenure?

Yes, various banks and NBFCs allow their customers to switch from fixed-rate home loan to floating rate home loan. Home loan borrowers can make the switch any time during their loan tenure for which they are charged a small fee, which varies from one lender to another.

✅ Which are the best banks/NBFCs to get a housing loan from?

The top lenders offering home loan in India are:

  1. State Bank of India (SBI)
  2. HDFC 
  3. Punjab National Bank
  4. ICICI Bank
  5. HSBC
  6. Axis Bank
  7. Bank of Baroda
  8. Canara Bank
  9. City Union Bank
  10. IDBI