SBI Home Loan: Bank increased interest rates on home loans

SBI Home Loan: The State Bank of India (SBI) has increased the interest rates on its home loans, effective from August 1, 2025. This move primarily impacts new borrowers and has raised concerns about a potential shift in the housing finance market.

SBI has raised the upper end of its home loan interest rate by 25 basis points (bps), effective from August 1, 2025. This means the interest rate for a regular home loan now ranges from 7.50% to 8.70%, up from the previous range of 7.50% to 8.45%.

This rate increase primarily impacts new borrowers, particularly those with a lower credit score who fall into the higher interest rate bracket. Existing customers on an external benchmark-linked loan are not affected by this particular change as banks are required by the RBI to pass on rate cuts to them.

This move by SBI, and other public sector banks like Union Bank of India which have also made similar changes, is a strategic one. Banks are facing pressure on their Net Interest Margins (NIMs) as the Reserve Bank of India (RBI) has been cutting the repo rate. While lending rates are falling, deposit rates (the cost of funding for banks) have remained “sticky,” or harder to bring down.

To protect their profitability, banks are increasing the “spread” (the difference between the lending rate and the reference rate) on certain loan products. This could signal a shift in strategy for public sector banks. After aggressively expanding their home loan portfolios at razor-thin margins in recent years, they are now prioritizing profitability over rapid growth.

For a new borrower, this increase translates to a higher Equated Monthly Installment (EMI). For example, a home loan of Rs 50 lakh for a 20-year tenure would see a monthly EMI increase by around Rs 737 due to this 25 bps hike. Over the entire loan period, this can add up to a significant amount in total interest paid.

Also Read: PM Modi govt offers Rs 5 lakh loan an interest of 4 per cent