How Do the New GST Rules Affect Home Loan Interest Rates?

Table of Contents

• Highlights of Home Loan Rates in India 2025
• What Drives Home Loan Interest Rates in India (2025)?
• Types of Interest Rates for Home Loans
• Documents Required for a Home Loan in India
• GST and Its Impact on Home Loans
  • What Does GST (Goods and Services Tax) Do?
• Does GST Have an Effect on Home Loan Interest or EMI?
• Key Factors to Consider Before Applying to Get a Home Loan
• Final Thoughts

Interest rates on home loans play a big role when you decide to apply for one. In India, different banks charge different home loan interest rates, and many factors shape these rates. Things like the RBI’s repo rate or monetary policies, your credit score, the loan period, whether you go for a fixed or floating rate, and the type of benchmark (like MCLR or external benchmarks) all have an influence on these rates. Plus, these rates aren’t fixed and can shift a lot because of changes in the market and RBI rules. 

By the middle to the end of 2025, interest rates for home loans from leading banks hover around 7.35% to 8% for borrowers meeting specific criteria.

Here’s an example:

• SBI provides home loans with rates starting at 7.50%, according to its website.
• Bank of Maharashtra states that its interest rates start at 7.35% on some specific schemes.
• IDFC FIRST Bank offers home loans with interest rates beginning from 8.85% in 2025 based on product variants.
• ICICI Bank mentions that its typical home loan interest rates range between 8.75% and 9.40%, depending on slabs and customer profiles.
• Banks adjust their spreads and slabs based on factors like credit rating, loan term, and loan size.

Borrowers now face various choices. Deciding between fixed and floating rates, reviewing processing fees, and comparing different offers has become crucial.

Highlights of Home Loan Rates in India 2025

Home Loan Amount	Up to 90% of property cost
Lowest Interest Rate on Home Loans	7.35% p.a. (Bank of Maharashtra, Central Bank of India, Indian Overseas Bank, Bank of India)
Highest Interest Rate on Home Loans	13.20%  (HDFC Bank)
Smallest Processing Fees	0.25% of the loan amount (Bank of Maharashtra)
Highest Processing Fees	Up to 3% of the loan amount (IDFC First Bank)
Interest Rates on Home Loans for Women	A concession of 0.05% is given to women
Duration of Loan	Up to 30 years

What Drives Home Loan Interest Rates in India (2025)?

To understand issues related to GST, it’s important to see what affects home loan interest rates in India by 2025.

• RBI Policy and Benchmark Rates: The repo rate and monetary policy shape how much it costs banks to access money. This influences the spreads they charge for home loans tied to external or internal benchmarks. When the RBI lowers the repo rate, borrowing becomes cheaper for banks, which might lead to lower floating-rate loan costs.

• Type of Interest Rate: Whether the rate is fixed or floating makes a difference. Floating rates change over time based on market trends. Fixed rates stay constant but may start higher.

• Your Credit Details and Risk Analysis: Banks tend to look at things like your credit score, job situation, how steady your income is, and current debts to decide the rate they’ll offer.

• Loan Size, Repayment Period, And Loan-to-value Ratio: If you’re borrowing a bigger amount opting for a longer repayment time or taking out a loan that covers a larger percentage of the property’s cost, you might notice slight differences in rates.

• Competitors and Banking Strategies: Banks often tweak their interest margins to stay in the competition when it comes to key mortgage customers. A few banks lowered rates or changed their MCLR, or external benchmark spread to bring in more borrowers.

Types of Interest Rates for Home Loans

When you apply to get a home loan in India, you can pick between two types of interest rates. Knowing how they work will help you decide.

1. Fixed Interest Rate

A fixed interest rate keeps the interest the same for the entire loan period. This lets you figure out your total repayment and plan your money better.

Choosing a fixed rate works well if interest rates go up later. But if rates are expected to drop, a fixed rate won’t let you take advantage of those lower rates.

2. Floating Interest Rate

Unlike fixed rates, floating interest rates change with the market. Housing finance lenders decide their benchmark rates based on the RBI’s repo rate. The changes in these rates can cause your EMIs to go up or down.

Picking a floating rate works well when you expect interest rates to drop. But since the market can be hard to predict, there’s always a chance the rate could rise, which means you might end up paying more overtime.

Documents Required for a Home Loan in India

If you’re applying for a home loan today (2025), here are the key documents for home loan that you will typically need:

Category	Common Required Documents
Identity Proof	Aadhaar card, Passport, Voter ID, Driving License etc.
Address Proof	Utility bills, rent agreements, passports, Aadhaar, etc.
Income Proof	For salaried: salary slips for last 3–6 months, Form-16, bank statements; For self-employed: Income tax returns for past 2–3 years, audited statements, business proof.
Employment / Business Proof	Employment letter, business registration / licenses applicable.
Property / Title Documents	Sale agreement, title deed, approved building plan, possession certificate or NOC from civic authorities, property valuation documents.
Age Proof	Birth certificate or school certificates or passport, etc.
Bank Statements	Typically, the last 6 months of account statements are important.
Other Documents	PAN card, passport-size photographs, any existing loan documents, no objection certificates etc.

Every lender might use a varied checklist. Some banks might ask for “minimal documentation” or documents like “property proof, address proof, income proof, or identity proof” as part of what they need.

Be prepared to handle fee evaluations, legal verifications, and property checks that lenders conduct. 

GST and Its Impact on Home Loans

What Does GST (Goods and Services Tax) Do?

GST serves as a consumption tax applied to goods and services in India. In 2025, the government made changes to the GST rates and structure to streamline the system.

Here’s an example:

According to news sources, the reforms announced in August 2025 aimed to simplify tax slabs. Intermediate slabs were removed moving towards a structure with straightforward rates like 5 percent and 18 percent.

Real estate and construction materials such as cement, marble, granite, and other building supplies could experience relief due to the reduced tax burden under this revised GST system.

These reforms change the costs of real estate construction. This can lead to changes in the price of houses built or custom homes that are still being constructed.

Does GST Have an Effect on Home Loan Interest or EMI?

The simple answer is no. There is no GST effect on home loan interest. It does not apply to the interest part of a home loan or the interest portion of an EMI, so, there is no impact on home loan interest.

But you should know about certain costs tied to GST or taxes:

• Processing Fees or Charges: Banks often charge processing fees such as application, appraisal, or administrative fees when approving a home loan. GST at 18 percent applies to these fees.

• Other Banking Costs: You might need to pay GST or taxes on charges linked to legal paperwork, property valuation, administration, or registration.

• Costs of Building Construction Materials: When you buy an under-construction flat or build a house, materials like cement, marble, or granite could come with GST or lowered GST based on reforms. These material costs are part of the overall property price. While they do not influence your loan interest rate, they raise your total purchase cost and the loan amount you need.

Banks do not label the interest rate on home loans as “with GST” or “without GST”. However, GST along with any changes affects the total cost of a home loan. This includes the taxes, processing fees, and legal-valuation expenses.

Key Factors to Consider Before Applying to Get a Home Loan

To get a home loan, you need to know how lenders decide if you qualify and what interest rate they give you.

Lenders look at several things when you want a home loan. These details help them decide if you qualify and what rate fits. Knowing this stuff can help you get a loan at a better rate.

1. Credit Score – Your credit score shows how well you handle money and pay your dues. Most lenders like to see a score of 750 or higher. A high score shows you make payments like EMIs and bills on time, use less credit, and manage it well.

Good credit scores can get you lower interest rates but having a low or no credit score might make lenders charge more or even refuse your loan. If your credit score isn’t great, getting a secured credit card could be a useful way to improve it over time.

2. Income and Employment – Lenders also look at your income, job stability, and where you work to decide if you can pay back a loan. People working in government jobs, public sector units, or well-known companies often get better rates because they have steady incomes. On the other hand, self-employed individuals or those with inconsistent income face more scrutiny and higher rates.

3. Loan Amount – The loan amount you plan to take out for your home can affect the interest rate you get. Loans up to Rs. 30 lakhs often come with lower rates than those for larger amounts. Paying more upfront as a lump sum can lower what you owe overall and might help you get a better rate on your loan.

4. Loan-to-Value (LTV) Ratio – The LTV shows how much of a property’s market price the lender agrees to fund. When the LTV is higher, the loan is bigger, which raises the lender’s risk. This results in a higher interest rate. To aim for a lower rate, think about paying more upfront and borrowing less.

5. Property Location and Condition – The area, age, and features of your property have an impact on its resale price. Homes in top locations and kept in good shape often have higher resale value. This increases the chances of lenders giving lower interest rates. On the other hand, older homes or those in less popular areas might lead to higher rates.

Final Thoughts

To get the best home loan interest rate in India, you need to compare offers from different banks. Things like your credit score, earnings, and where the property is located affect the rate you will receive. If you want to know which banks provide the lowest home loan rates, you should consider choosing public sector banks.

To secure the lowest home loan interest rates, keep a good credit history and look into joint loans or balance transfers if they seem helpful.