KKN Gurugram Desk | The dream of owning a home is shared by millions in India, and in 2025, that dream may have just gotten a little closer. Following a recent repo rate cut by the Reserve Bank of India (RBI), several banks have announced significant reductions in home loan interest rates. This comes as a relief to potential homeowners and existing borrowers alike, as lower interest rates directly impact monthly EMIs and overall loan costs.

In this detailed report, we cover which banks have reduced their lending rates, which private banks have not yet passed on the benefit, and how this will affect borrowers in the short and long term.

Why Have Home Loan Interest Rates Been Reduced?

The primary catalyst behind the interest rate drop is the RBI’s decision to cut the repo rate by 50 basis points. Repo rate is the rate at which the RBI lends short-term money to commercial banks. When it is reduced, banks’ borrowing costs decrease — allowing them to offer lower interest rates to their customers.

Since October 2019, RBI has mandated that all retail loans, including home loans, be linked to external benchmarks like the repo rate or treasury bill rates. As a result, changes in these benchmarks now automatically influence the lending rates offered by banks.

With the recent repo rate revision, banks were expected to adjust their home loan interest rates accordingly — and several public-sector banks have responded swiftly.

Public Sector Banks Offering Lower Home Loan Rates

A number of public sector banks have led the way in making housing loans more affordable. Here are the banks that have implemented significant interest rate cuts following the RBI move:

 Canara Bank

• Interest Rate: 7.80%

• Cut Implemented: 0.60%
  Canara Bank now offers one of the lowest home loan rates in India, making it a top choice for new borrowers.

 Bank of Maharashtra

• Interest Rate: 7.85%

• Cut Implemented: 0.50%
  This mid-sized bank has also aligned with the repo rate, offering a competitive home loan product.

 Central Bank of India

• Interest Rate: 7.85%
  Despite being a legacy bank, Central Bank has proactively passed on the benefit to its customers.

 Union Bank of India (UBOI)

• Interest Rate: 7.85%
  Consistent with its strategy to attract new retail borrowers, UBOI’s revised rates are market-friendly.

 Indian Bank

• Interest Rate: 7.90%
  While not the lowest, Indian Bank’s revised rate is still lower than many private sector counterparts.

 Indian Overseas Bank

• Interest Rate: 7.90%
  IOB’s revised rate is reflective of its push to remain competitive in the retail loan segment.

Private Banks Lag Behind in Passing On Benefits

Interestingly, some of India’s largest private sector banks have not yet reduced their home loan rates, despite the RBI’s repo rate cut.

 ICICI Bank

• Interest Rate: 8.75% (unchanged)

• ICICI Bank continues to offer loans at the same rate it did in January 2025, ignoring the RBI rate reduction.

Axis Bank

• Interest Rate: 8.75%
  Axis has yet to revise its rates, making it relatively more expensive for borrowers.

HDFC Bank

• Previous Rate: 8.75%

• Current Rate: 8.50%
  Though HDFC has reduced its rates slightly, the 0.25% cut is marginal and doesn’t match the full benefit of the repo rate drop.

Banks with the Highest Home Loan Interest Rates in 2025

While some banks are making housing more accessible, others still offer home loans at relatively high rates. Here are the most expensive options currently on the market:

🔺 Dhanlaxmi Bank

• Starting Rate: 9.35%
  This is currently the highest home loan interest rate among all major banks.

🔺 Yes Bank

• Interest Rate: 9.00%
  Despite being a new-age bank, Yes Bank’s home loan product remains on the higher side.

🔺 RBL Bank

• Interest Rate: 9.00%
  Another private lender that hasn’t revised its rates to benefit new borrowers.

Comparative Summary: Home Loan Interest Rates by Bank (May 2025)

What Does This Mean for Borrowers?

The difference in interest rates can have a major impact on your total loan cost and monthly EMI.

📊 Sample EMI Calculation (₹30 Lakhs Loan, 20 Years Tenure)

A mere 1% difference in interest rate can lead to savings of over ₹4.5 lakhs over the loan tenure.

Things to Consider Before Choosing a Home Loan

1. Compare Processing Fees: A lower interest rate may come with higher upfront charges.

2. Fixed vs Floating Rate: Repo-linked loans are typically floating, which can rise or fall over time.

3. Prepayment Penalties: Check if the bank charges fees for early repayment.

4. CIBIL Score Impact: Higher scores fetch lower rates. Maintain a credit score above 750 for best offers.

5. EMI Affordability: Use a home loan EMI calculator to plan your budget.

What Should Existing Borrowers Do?

If you already have a home loan with a higher rate, consider:

• Loan Balance Transfer: Switch to a bank offering lower interest rates.

• Negotiating with Current Bank: If your repayment history is strong, you might get a revised offer.

• Monitoring RBI Announcements: Stay updated on further policy changes that may affect rates.

The 2025 RBI rate cut is a golden opportunity for those looking to buy a home or refinance existing loans. While public sector banks have responded promptly with lower rates, some private banks are yet to follow suit. Borrowers should research thoroughly, compare offers, and evaluate long-term affordability before choosing a home loan provider.