Currently, home loan interest rates start at around 8%.
However, if things go as planned, by the end of FY 2025-26, you could secure a floating rate home loan at an initial rate of 6.6%, especially with select public sector banks (PSBs).
Other banks and housing finance companies might reduce rates to around 7% or 7.5%. But, to qualify for these rates, your credit score should be over 800.
Why Will Home Loan Interest Rates Decrease?
The Reserve Bank of India (RBI) is expected to cut the repo rate by 125 basis points (1.25%) by the end of this financial year.
According to SBI Research, 75 basis points of this cut could happen between June and August 2025.
Since February 2025, the RBI has already reduced the repo rate by 0.5% to 6%, and banks have passed on these savings to their customers.
SBI’s report notes that banks have also reduced their repo-linked lending rate (EBLR) by the same 0.5% in response.
Why Will the RBI Cut the Repo Rate?
SBI explains that due to low inflation and slow economic growth, this is the ideal time to lower interest rates, calling it a “Goldilocks period.”
The report suggests that if inflation continues to drop, the RBI may reduce the repo rate by as much as 1.5% (150 basis points) by March 2026, possibly bringing it below the neutral rate.
Which Banks Might Offer Loans at 6.6%?
Public sector banks like Union Bank of India and Central Bank of India are currently offering home loans at 7.85% for customers with a credit score of 800 or higher, until May 5, 2025.
If the RBI cuts the repo rate by 1.25%, these banks could reduce their rates to 6.6%.
Other government banks, such as Punjab National Bank (PNB) and Canara Bank, currently offer rates of 8% and 7.95%, respectively. These may also drop to 6.7% or 6.75%.
For borrowers with credit scores below 800, current home loan rates range between 8% and 9%. However, they may also see rate reductions in the near future.
What About Private Banks?
Private banks like HDFC Bank and ICICI Bank are offering home loans at rates starting from 8.7%.
With a 1.25% repo rate cut, these banks could bring down their starting rates to around 7.45% or 7.5%.
Why Is a Credit Score So Important?
Banks offer lower interest rates to customers with good credit scores (800+), as these customers are seen as less risky and more likely to repay their loans on time.
If you’re planning to take out a home loan this year but your credit score is lower, now is the best time to improve it to get a better deal on your loan.
