Home loan interest rates have come down after the Reserve Bank of India's (RBI) 25 bps repo rate cut last month, but new borrowers may not fully benefit as banks have likely widened spreads.
After the RBI reduced the repo rate by 25 basis points to 6.25 percent on February 7, its first in nearly five years, several public sector banks followed suit almost immediately.
Banks are obliged to pass on the full benefit of rate cut to repo rate-linked home loans within three months.
Since October 1, 2019, all new retail floating-rate loans are linked to an external benchmark, which is the repo rate in the case of most banks. As per RBI rules, banks review and adjust interest rates quarterly, though the timing of rate transmission varies by loan agreement.
Here's an overview of the banks offering the lowest home loan interest rates after the RBI's 25 bps repo rate cut on February 7. These rates are indicative and may vary based on individual factors like credit score, income, and other criteria.
Also, these are the interest rates applicable to new borrowers; some banks have tweaked their spread such that the fresh home loan rates have come down by 10-15 basis points, instead of 25 bps. “To avoid reducing rates in line with the repo rate cut, banks have widened the spread over the external benchmark for new home loan contracts. However, as per RBI rules, banks have to pass on the entire benefit to existing borrowers,” says Vipul Patel, Founder, MortgageWorld.
Data from Bankbazaar.com reveals that for a home loan of Rs 50 lakh for a tenure of 20 years, the banks are offering interest rates ranging between 8.10 percent and 8.75 percent (data as on March 21, 2025, from the bank websites).
Central Bank of India and Union Bank of India
Starting at 8.10 percent, the home loan interest rate offered by these two lenders is the lowest among all banks. Both banks have transferred 25 bps repo rate cut benefit to all their home loan borrowers. Equated monthly installment (EMI) on a Rs 50-lakh loan with a 20-year tenure will work out to Rs 42,134.
Bank of Baroda, Bank of India, Indian Bank, Indian Overseas Bank and Punjab National Bank
These five banks levy interest rates starting from 8.15 percent. They all have transferred 25-basis repo rate cut benefit to all their home loan borrowers. The EMI on a Rs 50-lakh loan with a 20-year tenure works out to Rs 42,290.
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Canara Bank
The bank levies interest rates starting from 8.20 percent. It has transferred 25-basis repo rate cut benefit to all their home loan borrowers. The EMI on a Rs 50-lakh loan with a 20-year tenure works out to Rs 42,446.
State Bank of India
SBI charges interest starting at 8.25 percent on home loans. It has reduced its interest rates by 25 basis points post the repo rate cut. The EMI on a loan of Rs 50 lakh with a 20-year tenure will amount to Rs 42,603.
Private banks may soon cut home loan rates
Some private banks are yet to transfer 25 bps rate cut benefit to existing home loan borrowers. “Banks have a three-month window to implement changes in interest rates after the RBI's monetary policy announcement,” says Adhil Shetty, CEO of BankBazaar.com. According to the RBI’s circular on the external benchmarking system issued in 2019, banks are required to reset the rates at least once in three months.
For instance, Kotak Mahindra Bank charges interest starting at 8.65 percent on home loans. Post the repo rate cut, the bank has reduced its home loan rates by 10 bps for new borrowers. The EMI on a loan of Rs 50 lakh with a 20-year tenure will be Rs 43,867.
Then, HDFC Bank charges interest starting at 8.70 percent. The bank has lowered its home loan rate by 5 bps for new borrowers. The EMI on a home loan of Rs 50 lakh with a 20-year tenure will be Rs 44,026. An HDFC Bank spokesperson said, “Existing home loan borrowers have been passed the benefit of the 25-bps cut based upon their interest rate reset cycle.”
Lastly, Axis Bank and ICICI Bank charge interest starting at 8.75-9 percent on home loans. The EMI on a loan of Rs 50 lakh with a 20-year tenure will be Rs 44,186. Axis Bank spokesperson said, “The bank has passed the rate reduction on to existing customers.”
Anuj Kesarwani, Founder, Zenith Finserve, says, “Private banks would have reduced their external benchmark lending rates (EBLR) after the repo rate cut announcement as it's mandatory for banks to pass on a full repo rate cut benefit to existing borrowers. But these banks might have increased the spread for new borrowers. So, the full benefit of the repo rate cut may not have been passed on to new borrowers.”
“Banks are free to decide the spread over the external benchmark. However, credit risk premium may undergo change only when the borrower’s credit assessment undergoes a substantial change, as agreed upon in the loan contract. Further, other components of spread including operating cost could be altered once in three years,” the RBI’s 2019 circular says.
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What should home loan borrowers do?
Shetty advises home loan borrowers to focus on their interest rate spreads rather than absolute rates, especially during periods of rate volatility. Borrowers with good credit scores can negotiate better spreads. Currently, with the repo rate at 6.25 percent, the lowest home loan rates are 8.10-8.25 percent, resulting in spreads of 1.85-2.00 percentage points for prime borrowers.
Shetty suggests reviewing your spread with your bank if it's significantly higher. For existing borrowers, the spread will remain constant. Refinancing to a lower spread may be a better option than continuing to pay a higher one.
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