As home loans are a long-term commitment, we offer some tips on how to choose a bank that serves you well throughout the loan tenure
Home loans not only help people to become property owners at a comparatively young age, but it also helps one to have ownership over secured assets, which is especially useful in an emergency situation like the Coronavirus pandemic. However, how cost-effective your home loan would be, depends on the bank you choose to get the home loan from. More importantly, the bank offering the lowest interest rate may not be the best bank for you, if you factor in the various other charges that the lenders impose on providing the loan.
To put it simply, it may be quite confusing for a home buyer to select the best financial institution to borrow the home loan from while evaluating not only the lowest interest rates but also the overall effectiveness of the bargain. This is why selecting the best bank for a home loan is highly subjective and the borrower needs to keep in mind various factors.
To make things easier for borrowers, we list here the best banks to get a home loan from in 2021.
Note: As the interest charges will always be the single-biggest influencer in driving the borrower’s decision, we have listed the banks that offer you the most affordable deals, currently. However, while making the list, we have also determined the banks’ loan affordability, by factoring in the fringe charges. Also note that the rates mentioned in this article are with regard to the floating rate of interest, linked with the RBI’s repo rate and not the previous marginal cost of funds-based lending rate (MCLR) regime, or base rate or prime lending rate regimes.
Kotak Mahindra Bank
A fast-growing private lender, the Uday Kotak-headed banks has branched over 100 cities in India. At present, Kotak Mahindra is offering the best rate of interest on home loans in the market.
Kotak Mahindra home loan interest rate
| Rate of interest on home loans | Best rate* | Highest rate** |
| For salaried individuals | 6.50% | 7.05% |
| For self-employed individuals | 6.50% | 7.40% |
*Rate applicable from September 10, 2021, to November 8, 2021.
**Rate is applicable from May 1, 2021.
Longest tenure: 30 years
Processing fees: none, right now; 0.5 to 1 % of the loan amount, typically.
Affordability scale: High
Advantages: You can get instant approval for your home loan through the Kotak Digi Home loan facility. Since the bank has kept the rates at the lowest level in the entire market in the past year and plans to keep the housing finance segment as its key focus, borrowers can expect extended benefits.
Disadvantages: When compared to some public lenders, Kotak Mahindra has less penetration in India. In the case of home loans, you always have to make physical visits to the branch for various purposes.
State Bank of India (SBI)
The largest mortgage lender in India, the government-run State Bank of India (SBI) has assisted over 30 lakh families in their home purchases to date. Established in 1955, the lender also has over 24,000 branches in India and abroad. Note that SBI is the biggest player in the home loan segment, with a book size of Rs 5.05 trillion. On a year-on-year basis, its home loan book has grown by 11% cent in Q1, FY22.
SBI home loan interest rate
| Rate of interest on home loans | Best rate* | Highest rate* |
| For salaried individuals | 6.7% | 7.05% |
| For self-employed individuals | 6.7% | 7.05% |
*Rate applicability from May 1, 2021
Longest tenure: 30 years
Processing fees: 0.40% of the loan amount, subject to a minimum of Rs 10,000 and a maximum of Rs 30,000 with GST. For projects where the bank has a tie-up with the builder, the rate will be 0.40% subject to a maximum of Rs 10,000 plus taxes.
However, if a borrower applies for a home loan between August 1, 2021, and August 31, 2021, SBI will charge no processing fee on home loans under its Monsoon Dhamaka offer. After this period, borrowers will have to pay 0.40% of the home loan amount as the processing fee at SBI.
Affordability scale: High
Advantages: The government-run bank is always among the first ones to reduce its interest rates, in case the RBI lowers the repo rate. It also makes perfect sense to rely on one of the best-performing Indian banks to meet your borrowing needs. The great financial health of the bank also gives borrowers a reason to stick with SBI.
Since SBI has done away with the occupation-linked interest penalty recently, it is also now charging the same interest from salaried and self-employed professionals.
Disadvantages: The number of documents that applicants have to submit is high considering the bank employs strict due diligence to affirm the creditworthiness of the borrower. The best rate of interest is also offered to borrowers with credit scores of 750 and above.
Public lenders may sometimes be lax in passing on crucial information that can be beneficial for home loan borrowers. This means you will have to continue to track news development related to changes in home loan policies and demand the due benefits from time to time.
HDFC
Established in 1977, HDFC has helped over 80 lakh people purchase their homes to date. It is important to note here that HDFC, a Mumbai-headquartered housing finance company (HFC), should not be confused with HDFC Bank, even though the two entities are part of the same HDFC Group.
HDFC home loan interest rate
| Rate of interest on home loans | Best rate* | Highest rate* |
| For salaried individuals | 6.75% | 7.40% |
| For self-employed individuals | 6.75% | 7.85% |
*Rate applicability valid from March 4, 2021
Maximum tenure: 30 years
Processing fees: Up to 0.50% of the loan amount or Rs 3,000, whichever is higher.
Affordability scale: High
Advantages: HDFC is also among the first HFCs to reduce rates after the RBI announces rate cuts. As part of a highly successful group, the HFC also has great scope to offer benefits to its customers.
Disadvantages: The best rates by HDFC are available to borrowers with a credit score of at least 750. You will not be able to get these rates in case of lower scores.
ICICI Bank
ICICI Bank, the country’s second-largest private lender by market capitalization, was originally promoted in 1994 by ICICI Limited and was its wholly-owned subsidiary. ICICI Bank currently has a network of 5,288 branches across India.
ICICI Bank home loan interest rate
| Rate of interest on home loans | Best rate* | Highest rate* |
| For salaried individuals | 6.75% | 7.95% |
| For self-employed individuals | 6.95% | 8.05% |
*Rate applicability from March 5, 2021
Maximum tenure: 30 years
Processing fees: 0.50% of the home loan amount.
Affordability scale: High
Advantages: One of the most customer-friendly banks, ICICI Bank is also quick in offering rate transmission benefits. The ease of conducting business on its various online platforms is also remarkably easy, unlike some other banks.
Disadvantages: Since the bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its group companies, you could expect a lot of cold calls.
Bank of Baroda
The Vadodara-headquartered Bank of Baroda became the third-largest bank in India after SBI, after its merger with Dena Bank and Vijaya Bank in April 2019. Founded by the maharaja of Baroda in 1908, the bank, along with 13 other major commercial banks of India, was nationalized on July 19, 1969, by the government and currently operates more than 10,000 branches in India and abroad.
Bank of Baroda home loan interest rate
| Rate of interest on home loans | Best rate | Highest rate |
| For salaried individuals | 6.75%* | 9% |
| For self-employed individuals | 7% | 9% |
*Effective from March 15, 2021.
Maximum tenure: 30 years
Processing fees: None currently
Affordability scale: High
Advantages: The process to get a loan is very easy on the online platform.
Downside: People with poor credit scores will find the cost of borrowing higher and should, thus, focus on getting credit from HFCs or NBFCs. As mentioned earlier, public lenders are highly slow in passing on crucial information to their borrowers.
Punjab National Bank
The second-largest public sector bank in India, Punjab National Bank (PNB) is also currently offering home loan interest rates at affordable rates. The New Delhi-headquartered state-owned bank was founded in 1894 and has over 80 million customers and 6,937 branches across 764 cities.
Punjab National Bank home loan interest rate
| Rate of interest on home loans | Best rate | Highest rate |
| For salaried individuals | 6.55% | 7.40% |
| For self-employed individuals | 6.60% | 7.40% |
Maximum tenure: 30 years
Processing fees: None at present. Typically, it is 0.35% of the loan amount, with the lower and upper limits capped at Rs 2,500 and Rs 15,000, respectively.
Affordability scale: High
Advantages: The temporary waiver in processing fee lowers the overall expense for the borrower. People with good credit scores are also invariably rewarded by the bank.
Disadvantages: The bank’s image has suffered major setbacks in the recent past amid a dramatic surge in toxic loans and its alleged involvement in fraud cases. Also, borrowers might find the services much less customer-friendly than most private lenders.
LIC Housing Finance
A subsidiary of LIC, the company has so far approved over 3.35 lakh home loans.
LIC Housing Finance home loan interest rate
| Rate of interest on home loans | Best rate | Highest rate |
| For salaried individuals | 6.66% | 7.80% |
| For self-employed individuals | 7% | 7.90% |
Maximum tenure: 30 years
Processing fees: 0.25% of the loan amount, with the upper limit, capped at Rs. 10,000.
Affordability scale: Average
Advantages: LIC HFL offers 90% of the property value as a home loan.
Disadvantages: Interest rates are not as low as some of the leading Indian banks.
Canara Bank
Founded in July 1906 at Mangalore, Karnataka, Canara Bank was nationalized in 1969. This bank which is over a century old has its headquarters in Bengaluru and operates over 10,391 branches across India. Last year, Canara Bank became the fourth-largest state-owned bank by assets after its merger with Syndicate Bank assuming a business size of over Rs 16 trillion.
Canara Bank home loan interest rate
| Rate of interest on home loans | Best rate | Highest rate |
| For salaried individuals | 6.90% | 8.90% |
| For self-employed individuals | 6.90% | 8.90% |
Maximum tenure: 30 years
Processing fees: 0.50% of the loan amount with the minimum and the upper limit capped at Rs 1,500 and Rs 10,000, respectively.
Affordability scale: Average
Advantages: You could repay your loan till you attain the age of 75 years. This means people purchasing their home in their middle ages, will find this bank more fitting.
Disadvantages: For a higher loan size, you will have to make a contribution of up to 25% of the property’s value. Unlike most banks, Canara Bank also charges a processing fee on home loans even now.
Union Bank
This Mumbai-headquartered public lender is currently offering the cheapest home loans in the market. A limited company, the bank has a network of over 9,500 domestic branches.
Union Bank home loan interest rate
| Rate of interest on home loans | Best rate | Highest rate |
| For salaried individuals | 6.70% | 7.15% |
| For self-employed individuals | 6.90% | 7.35% |
Maximum tenure: 30 years
Processing fees: 0.50% of the total loan amount with the upper limit capped at Rs 15,000.
Affordability scale: High
Advantages: Currently the best bank to apply for a home loan, this state-run lender would offer you a loan if you are 18 years of age, unlike most banks who offer home loans to people over 21 years. There is also no limit on the quantum of the loan you could borrow from here.
Disadvantages: Though the rates at Union Bank are currently the lowest, the transmission of downwards changes is typically not very fast.
HDFC Bank
Those who find it more comfortable to stick with a bank rather than an HFC could apply for a home loan at HDFC Bank, the baking subsidiary of the HFC, HDFC. Incorporated in 1994, the bank has a nationwide network of 5,430 branches.
HDFC Bank home loan interest rate
| Rate of interest on home loans | Best rate | Highest rate |
| For salaried individuals | 6.80% | 7.85% |
| For self-employed individuals | 6.80% | 7.85% |
Maximum tenure: 30 years
Processing fees: Up to 0.50% of the loan amount or Rs 3,000, whichever is higher.
Affordability scale: Average
Advantages: The bank is comparatively fast in transmitting the benefits of policy rate cuts.
Disadvantages: The process to get your loan approved may be longer, considering that the bank would demand a lot of documents and carry out several checks, to avoid bad loans. This has been instrumental in keeping the bank’s financial health in check, even during the worst of the financial crisis.
Axis Bank
A leading private sector bank established in 1993, Axis Bank currently runs around 4,500 branches in India and abroad.
Axis home loan interest rate
| Rate of interest on home loans | Best rate | Highest rate |
| For salaried individuals | 6.90% | 8.40% |
| For self-employed individuals | 7% | 8.55% |
Maximum tenure: 30 years
Processing fees: Up to 1% of the loan amount, with the minimum amount capped at Rs 10,000.
Affordability scale: Average
Advantages: The bank is a pioneer in terms of rewarding credit-worthy individuals and has been among the first to offer them lower rates of interest.
Disadvantages: While most banks offered a processing fee waiver in view of the festive season and the Coronavirus pandemic starting October 2020, Axis Bank continues to charge this duty. Also, the processing fee of this bank is comparatively higher than what is charged by other banks.
Important rules to follow when deciding on a bank for a home loan
- Banks are faster in passing on the rate cut benefits to customers, as compared to NBFCs and HFCs.
- Salaried individuals can get a better deal from a bank if their credit score is good. Banks will be willing to negotiate a sweeter deal if you are a bankable customer.
- Banks are not averse to negotiating even though it might not appear so. After all, they are also in the market, selling a product like any other company.
- Each bank is different and offers different benefits. Select a bank, based on your own individual requirement.
Why does buying a property make sense right now?
With the second wave of the Coronavirus pandemic adversely affecting the economy, the Reserve Bank of India (RBI), on August 6, 2021, decided to keep the repo rate unchanged amid rising pressure on the banking regulator to offer liquidity support to the economy. With home loan interest rates already at a record low, the year 2021 is possibly the best time to purchase a property using borrowed capital. This is especially true if you also keep in mind the discounts offered by developers and the reduction in stamp duty announced by various state governments.
More importantly, property prices are also at a low trajectory currently and are likely to move upwards when the economic state of India starts to improve.
Price Growth: City-Wise Break-Up
| City | The average price as of June 30, 2021(in Rs per sq ft) |
| Ahmedabad | 3,251 |
| Bangalore | 5,495 |
| Chennai | 5,308 |
| Hyderabad | 5,790 |
| Kolkata | 4,251 |
| MMR | 9,475 |
| NCR | 4,337 |
| Pune | 5,083 |
| National average | 6,234 |
Source: Real Insight: Q2 2021
Things to keep in mind
- Amid increasing delinquency rates, almost all banks now offer their best interest rates only to applicants with good credit scores. As mentioned earlier, a credit score above 700 qualifies as a good credit score.
- Changes in the repo rate will not immediately reflect in your home loan EMI payments. Rates are reset by banks at fixed intervals.
- Be mindful that banks cannot charge a penalty for prepayment of home loans linked with the floating rate of interest.
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