Home loan interest rate at 6.6% for credit score above 800 likely by FY 2025-26 end; here's why

By the end of the Financial Year 2025-26, borrowers with a credit score above 800 may be able to book floating-rate home loans starting at 6.6% interest in select public sector banks. The starting home loan interest rate of other banks or lenders may also be reduced to 7% or 7.5%.

The above may be possible because the Reserve Bank of India (RBI) is expected to reduce the repo rate by around 125 basis points or 1.25% by the end of the current financial year. (1 basis point = 0.01%)

Since February 2025, the RBI has reduced the repo rate by 0.5% to 6%. And banks have already passed on the benefit of the repo rate cut to borrowers by reducing their loan rates.

"In response to the 50-bps cut in the policy repo rate since February 2025, banks have reduced their repo-linked EBLRs by a similar magnitude," SBI Research said in a report on Monday (May 5, 2025).

The benefit of any further reduction in the repo rate will also be transmitted to borrowers.

Given low growth and low inflation, SBI Research says, "it is the Goldilocks period to slash the policy rates."

As per the report, not just 1.25%, even a 1.5% reduction in repo rate is possible by March 2026. "Assuming further convergence of domestic inflation to target, the possibility of cumulative rate cut of 125-150 bps is also possible by March 2026…implying repo rate declining below neutral rate," SBI Research said.

Which bank may offer home loans at 6.6%?

As of May 5, 2025, public sector banks like Union Bank of India and Central Bank of India are offering home loans starting at 7.85% to borrowers having a high credit score of 800 or above. The 1.25% expected cut in the RBI's rate will lead them to reduce their home loan rates for high-credit-score borrowers to 6.6%.

Other public sector banks like Punjab National Bank and Canara Bank are offering home loan interests starting at 8% and 7.95% respectively to borrowers with high credit scores. They may also have to offer home loans at 6.75% or 6.7% if the RBI reduces the repo rate by 1.25% by March 2026.

Currently, borrowers with less than 800 credit score may get home loans at 8-9% in these banks. These rates will also see a reduction corresponding to the repo rate cuts in the coming months.

What about private sector banks?

At present, private sector lenders like HDFC Bank and ICICI Bank are offering home loans starting at 8.7% or more to individuals with high credit scores. If the repo rate is slashed by 1.25%, they may also reduce their starting home loan rates to around 7.45% or 7.5%.

Why does the credit score matter?

Banks reward individuals with high credit scores with lower home loan interest rates. This is because a high credit score highlights a borrower's credit discipline and ability to repay the loan on time.