Home loan: The initial interest rate of home loan is still around 8%. But, if everything goes well, by the end of FY 2025-26 you can book a floating rate home loan at an initial rate of 6.6%, especially in a few selected public sector banks (PSBS). The rest of the banks and housing finance companies can also reduce home loan interest rates to 7% or 7.5%. However, for this your credit score should be above 800.
Why will the home loan interest rate be low?
The Reserve Bank of India (RBI) is expected to cut the repo rate by about 125 basis points (1.25%) by the end of the current financial year. According to SBI Research, the repo rate in June and August 2025 has a total reduction of 75 basis points.
Since February 2025, RBI has already reduced the repo rate from 0.5% to 6%. Banks have also brought this advantage to their customers. SBI report says, “In response to the policy cut of 50 BPS from February 2025, banks have cut the same in their repo-linked lending rate (EBLR).”
Why will RBI cut repo rate?
According to SBI, due to low inflation and slow growth in the country, it is ‘Goldalox period’ i.e. the best time to reduce interest rates.
The report also states that if inflation continues further, there may also be a total cut of 1.5% (150 bps) by March 2026. This means that the repo rate can go below the neutral rate.
Which banks can get a loan at 6.6%?
Government banks like Union Bank of India and Central Bank of India are giving home loans to customers with 800+ credit scores at an initial rate of 7.85% by 5 May 2025. If the RBI cuts the repo rate by 1.25%, these banks can reduce this rate to 6.6%.
Other government banks like PNB (Punjab National Bank) and Canara Bank are currently giving home loans at the rate of 8% and 7.95%. Their rates can also come down to 6.7% or 6.75%.
Those whose credit score is less than 800, they are currently getting home loans at interest rate between 8% to 9%. They can also get relief in the coming months.
What will private banks do?
Private banks like HDFC Bank and ICICI Bank are currently giving home loans at the rate of 8.7% or more. If the repo rate cuts by 1.25%, they can also bring their initial interest rates up to 7.45% or 7.5%.
Why is the credit score so important?
Banks offer home loans to customers at cheap interest, whose credit score is good (800 or above). This means that the customer pays EMI on time and has less risk in giving loans.
If you are thinking of taking a home loan this year and your credit score is low, this time is best to improve your credit score.
Also read: Credit Score: How does the loan inquiry affect the credit score? Know the answer in 5 points