A home loan is a type of secured loan offered by banks or other financial institutions like NBFCs and HFCs to purchase, construct, or renovate a residential property, where the property is collateral for the loan until it is completely paid off by the borrower. This text provides a comprehensive explanation of what a home loan is, the main types of home loans offered in India, important qualifying criteria and primary advantages for homebuyers.
What is a Home Loan?
A home loan (also referred to as a housing loan) is a type of financing where a lender provides funds for the purchase, construction, or renovation of a residential property. This financial arrangement allows individuals to acquire a home without having to pay the full purchase price upfront, making homeownership more accessible to a wider range of people. Additionally, the funds provided by the lender are secured by the property itself, meaning that collateral for the loan is served by it. As a result, a mortgage for the lender is acted as by the property until the home loan is fully paid off.
This security not only protects the lender’s investment but also typically enables borrowers to secure lower interest rates compared to unsecured loans. Consequently, home loans play a crucial role in the real estate market by facilitating homeownership and contributing to the overall economy. In India, borrowers pay back the loan in installments called equated monthly installments (EMIs) spanning a maximum of 30 years.
Types of Home Loans
In India, several home loans are provided by banks and Non-Banking Financial Companies (NBFCs) based on the different needs of customers. These are the types of home loans:
1. Home Purchase Loan
Purpose: Buy a new, ready-to-move, or resale house/flat.
Features: Most common home loan; usually covers up to 80-90% of the property value.
2. Home Construction Loan
Purpose: Build your own house on a plot of land you already own.
Features: Disbursed in installments based on construction progress; funding based on estimated construction costs.
3. Home Renovation / Improvement Loan
Purpose: Upgrade, repair, or modify your existing home (e.g., adding a room, remodeling).
Features: Suitable for both major renovations and small repairs.
4. Plot Loan (Land Loan)
Purpose: Buy a plot of land to build a home in the future.
Features: Usually, land requires residential construction within a stipulated timeframe (generally 3 years).
5. Home Extension Loan
Purpose: To add new rooms or extra floors to a house, Fund home extension.
Features: Determine to enhance usable home space.
6. Balance Transfer Loan
Purpose: Transfer your home loan to a different lender of your choice.
Features: Offers the ability to save on EMIs or total interest payable.
7. Composite Loan
Purpose: Purchase a plot and build a home on it in one package.
Features: Provides more flexibility regarding the home construction loan.
Eligibility criteria for a Home Loan
While criteria can vary from lender to lender, almost all lenders will consider the following:
- Age: 20-65 years for salaried, 21-70 for self-employed (at loan maturity)
- Employment: Must be salaried or business profession/self-employment.
- Monthly Income: Usually, a minimum of ₹25,000-₹40,000 (varies by city & lender).
- Credit Score: 700 & above allows a customer to avail the best offerings.
- Property: Must be legal and meet the lender’s technical eligibility checks.
- Loan Amount: Determined by income, repayment capability estimation and LTV (loan-to-value) ratio. Most banks disburse 80–90% of the property value.
Key Benefits of Home Loans
A home loan in India comes with numerous advantages.
- Tax Benefits: Deductions of ₹1.5 lakh on the principal (Section 80C) and ₹2 lakh on the interest (Section 24b) can be claimed each year.
- Long Repayment Tenure: Offers flexibility in repayment up to 30 years, thus making the EMIs more reasonable.
- Due Diligence: Reduced chances of fraud as banks undertake property checks.
- No Prepayment Penalty: Most banks have no restrictions on repayment of floating-rate home loans.
- Low Interest Rates: Interest rates are lower than those charged on personal loans and credit cards, as the loan is secured by property.
- Improved Credit Score: Enhances your credit score as the loan is repaid on time.
- Builds Your Asset: Enables home ownership which can be achieved without waiting years to save up for a home.
Types of Home Loans
Frequently Asked Questions
Home Loan Interest Rate Comparison
| Bank / Lender | Interest Rate Type | Interest Rate Range (p.a.) | Notes |
|---|---|---|---|
| State Bank of India | Floating | 7.50% – 8.95% | Uniform across loan sizes |
| HDFC Bank | Floating | 7.90% onwards | |
| Bajaj Housing Finance | Floating | 7.35% onwards | |
| ICICI Bank | Floating | 7.70% onwards | |
| Axis Bank | Floating | 8.35% – 11.90% | High top range for special loans |
| Punjab National Bank | Floating | 7.45% – 9.35% | |
| Kotak Mahindra Bank | Floating | 7.99% onwards | |
| Central/BOI/BOM/IOB | Floating | 7.35% onwards | Among lowest rates currently |
Note
Floating rates are the default for most new home loans in India in 2025. Fixed rates are typically 1–2% higher than floating rates; therefore, fixed would be about 8.5%–10.5% if floating is 7.5%–8.5%. Additionally, true 20–30 year fixed loans are rare.
Fixed vs Floating Rate Comparison
| Feature | Floating Rate | Fixed Rate |
|---|---|---|
| Oct 2025 Typical Range | 7.35% – 9.35% | 8.5% – 10.5% |
| Changes Over Tenure | Yes, based on RBI rates | Stays constant (for period) |
| EMI Fluctuation | Possible | Stable during fixed period |
| Best for | Long tenures, falling/neutral rate trend | Short tenure, rising rate worries |
| Prepayment Penalty | Usually None | Sometimes applies |
Key Details
- For home loans involving a balance transfer, you will be offered interest rates pegged to a competitive floating rate, which is similar to that offered on new loans. Make sure to evaluate the processing fees before making any transfers.
- Loans for a plot, construction, or renovation can potentially occupy the higher end of the range you see advertised, an up to an additional 1% is a possibility.
- Factors such as your credit score, borrower classification, whether salaried or self-employed, the value of the property and ties with the bank will determine the actual offer.
Which banks offer lowest rates home loans for salaried applicants
As of October 2025, the institutions extending the most affordable home loan interest rates for salaried individuals primarily consist of several competitive public and private sector banks.
Least Home Loan Rates for Salaried Applicants (Oct 2025)
| Bank | Interest Rate Range (p.a.) | Highlights for Salaried Applicants |
|---|---|---|
| Bajaj Housing Finance | 7.35% Onwards | Designed for salaried individuals with easy documentation |
| Bank of India | 7.35% Onwards | Low rates and flexible tenure options |
| Punjab National Bank | 7.45% Onwards | Offers special schemes for salaried professionals |
| State Bank of India | Starting around 7.50% | Popular choice with extensive branch network |
| HDFC Bank | Around 7.90% onwards | Attractive for salaried class with robust services |
| ICICI Bank | Around 7.70% onwards | Competitive rates and quick processing |
Key Notes
- Due to the predictability and stability of salaried applicants’ income, they typically qualify for, consequently, the most competitive interest rates.
- Interest rates depend relatively on the amount of salary, credit scores and employer relations.
- Salaried applicants perceive Bajaj Housing Finance and Bank of India to offer the lowest rates starting at 7.35%.
- Public sector banks like SBI and PNB have predictably competitive and transparent rates.
- HDFC and ICICI, while somewhat more expensive compared to public sector banks, offer added conveniences.
The data above was last verified in October 2025 and, consequently, aligns with data available in the market and lender documentation. This is aimed at salaried individuals applicants for home loans, seeking to identify affordable options for home loans financing.