With the rising trends in India’s real estate market, more Indians are looking to invest in property in the expectation of high returns. However, besides investments, real estate can also be a source of satisfaction for first-time homeowners. In fact, property has become more accessible to first-time homeowners in India because of housing loans. These loans come with a quite dynamic interest rate. The interest rates on housing loans have changed significantly since last year. As an aspiring homeowner, you must know the reasons for this change to be able to make an informed financial decision.
RBI’s Monetary Policy Adjustments
One of the main reasons for the changes in home loan interest rates is the monetary policy adjustments made by the Reserve Bank of India (RBI). Recently, in April 2025, the RBI reduced the repo rate by 25 basis points to 6.00%. This means banks lending money from the RBI now have to pay a lower interest rate, which directly translates to lower interest rates on home loans provided by the bank to customers.
This change was made due to increasing global trade tensions and concerns regarding India’s domestic trade growth. Regardless, this welcome change can be beneficial if you plan to take a housing loan this year.
Inflation Trends and Economic Growth
Other factors that have affected home loan interest rates this year are the higher Gross Domestic Product (GDP) and lower inflation forecasted by the RBI. In April this year, the RBI forecasted a 6.5% increase in the GDP of 2024-2025. The RBI also cut the forecasted inflation from 4.2% to 4.0%, impeding banks from offering a lower rate of interest for home loans.
These have led to a more stable economic outlook for this year compared to 2024. As a result, banks are more motivated to lend, considering a lower risk of loan defaults. This is because a higher GDP and lower inflation forecast mean higher disposable income among Indians. This directly translates into a higher capacity to repay housing loans, increasing the banks’ confidence.
Global Economic Factors
In addition to the national factors, a few global economic factors will likely reduce home loan interest rates this year. The recent developments of the U.S.A. imposing 26% tariffs on Indian goods being exported abroad have led to some uncertainties in India’s global economic outlook. As a result, the RBI has adopted an accommodative monetary policy to dampen the negative impact on the Indian economy.
This means the RBI may further reduce the repo rate, which can further motivate banks to lower their loan interest rates. This is usually done to encourage borrowing, which can help stimulate more economic activity. Such an increase in economic activity will likely uplift the Indian economy from the negative impacts of the increased American trade tariffs.
Fortunately, these changes can benefit you as a prospective home buyer, helping you obtain a home loan at lower interest rates.
Transmission of Rate Cuts to Borrowers
Despite the above-mentioned steps taken by the RBI to stimulate economic growth in the country, banks may still be careful about lending money. Therefore, the transmission of home loan interest rate cuts to borrowers like yourself may vary from bank to bank. So, you will most likely need to enquire with your bank or non-banking financial company (NBFC) about the present interest rate on housing loans.
Final Thoughts
In conclusion, several domestic and global economic factors that have affected home loan interest rates this year may not be present next year. Hence, it is clear that with the dynamism of housing loan interest rates, it is best to always research before applying for a housing loan.
