To get the most from a home loan in India, claim the tax deductions you are entitled to (up to Rs 2 lakh a year of interest on a self-occupied home and up to Rs 1.5 lakh of principal under the old tax regime), keep a strong CIBIL score, choose the right rate type, prepay when you can and switch lenders if your rate is well above the market.
Key Takeaways
- Tax deductions depend on your regime: home-loan interest (up to Rs 2 lakh for a self-occupied home) and principal (within the Rs 1.5 lakh overall limit) are deductible only under the old tax regime; the new regime, which is the default, allows neither for a self-occupied home.
- Section numbers changed on 1 April 2026: under the Income-tax Act, 2025, the old Section 24(b) interest deduction sits in Section 22 and the old Section 80C deduction sits in Section 123 read with Schedule XV. The limits did not change.
- Most floating-rate home loans track the repo rate: the RBI repo rate was 5.25% as of September 2026, after the Monetary Policy Committee held it on 5 August 2026.
- Prepayment is usually free on floating-rate loans: RBI directions bar prepayment charges on floating-rate loans to individuals for non-business purposes sanctioned or renewed on or after 1 January 2026.
- Your credit score sets your price: a higher CIBIL score improves both approval odds and the rate a lender offers.
Note (September 2026): Several details in this older article are out of date. DHFL defaulted in 2019 and its business was taken over by Piramal in 2021, and the Tata Housing 3.99% rate was a time-limited promotion that has ended. Compare current home-loan rates from several lenders before you apply.
A home loan in India is a secured loan taken against the house being bought or built; it is not a credit card facility. DHFL, which an earlier version of this article named, no longer lends under that brand, because its business was taken over by Piramal Capital & Housing Finance in 2021. Many borrowers miss out on home-loan benefits, such as tax deductions, lower rates after a balance transfer and interest savings from prepayment, because nobody explains them clearly.
Some banks send pre-approved loan offers to existing customers, including credit card holders, but a home loan is still assessed on its own merits: your income, existing debts, credit history and the value of the property. A credit card guideline explains how to pick a card, and it is worth reading because the way you use a credit card feeds directly into the credit score that home-loan lenders check. A clean repayment record makes approval more likely and can help you secure a lower interest rate.
Why Take a Home Loan? The Main Benefits
Under the old tax regime, you can deduct up to ₹2 lakh a year of home-loan interest on a self-occupied home, and principal repayments count towards the ₹1.5 lakh investment deduction (Sections 24(b) and 80C of the Income-tax Act, 1961; the Income-tax Act, 2025 moved these to new section numbers from April 2026). These deductions are not available under the new tax regime, which is now the default. A home loan therefore lets a family buy a home without using up all its savings, spreads the cost over many years and, for old-regime taxpayers, reduces the tax bill every year.
Consider what would happen to the loan if the main earner had an accident or a serious illness. Medical bills and lost income could make the EMIs hard to pay, and the lender can still recover the loan from the property. Check whether your loan or insurance includes accident cover, as terms vary between lenders and insurers.
Tata Group’s Realty firm Tata Housing once ran a promotional home-loan scheme for buyers in selected projects. Under that limited-period scheme, buyers were offered a 3.99% interest rate, which was a promotional rate and not a standard home-loan rate. The offer covered only selected Tata Housing projects and has since ended, so it is not available today.
The financing came from Indiabulls Housing Finance (renamed Sammaan Capital in July 2024), which marketed its loans as Indiabulls Home Loans.
How much can you borrow, given your income and your existing loan repayments? How much extra credit can you get?
By looking at your CIBIL report and understanding how banks read it when they decide on your loan, you can correct errors and strengthen your profile before you apply.
Your credit report and CIBIL score (from TransUnion CIBIL, one of the credit bureaus licensed by the RBI, alongside Experian, Equifax and CRIF High Mark) decide not only whether you qualify for a home loan but also the rate and terms you are offered.
The higher the score, the better your chance of approval and the more likely you are to be offered a lower rate. Therefore, check your CIBIL report before applying for a loan.
Here are three habits that help keep your CIBIL report clean and your score high.
1] Repay your outstanding loans on time
Be sure to pay every loan EMI and credit card bill in full by its due date. Your payment history has a significant impact on your CIBIL score. The timely payment of the EMI and credit card bills will assist you in maintaining a high credit score and a healthy credit report.
2] Control your credit card limit
Spending close to your credit card limit can pull down your CIBIL score, because it signals heavy reliance on credit. A rising outstanding balance also increases what you must repay each month and can have a negative impact on your score. Keep card balances well below your limit and clear them in full each month.
3] Limit your total credit exposure
The total amount you owe appears on your credit report and affects your CIBIL score. Holding many loans or credit cards at once raises your total debt and the risk that lenders see. Higher credit risk can lower your CIBIL score and reduce the amount a lender is willing to approve. If you have several loans, consider closing smaller ones, such as personal loans or card balances, before you apply for a home loan.
How Can You Maximize Home Loan Tax Benefits in India?
Home loan tax benefits in India come from two deductions: one for the interest you pay and one for the principal you repay. Both are available only if you choose the old tax regime. As of September 2026, the limits are unchanged from earlier years, but the section numbers changed when the Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026 (tax year 2026-27 onward).
| Benefit | Income-tax Act, 1961 | Income-tax Act, 2025 (from 1 April 2026) | Annual limit | New tax regime? |
|---|---|---|---|---|
| Interest on a self-occupied home | Section 24(b) | Section 22 | Rs 2 lakh | Not allowed |
| Interest on a let-out home | Section 24(b) | Section 22 | No cap against rental income; a resulting loss can be set off against other income only up to Rs 2 lakh (old regime) | Allowed against rental income, but the loss cannot be set off or carried forward |
| Principal repayment | Section 80C | Section 123 with Schedule XV | Within the Rs 1.5 lakh overall limit | Not allowed |
| Stamp duty and registration charges | Section 80C | Section 123 with Schedule XV | Within the same Rs 1.5 lakh limit, in the year paid | Not allowed |
| Extra interest for first-time buyers of affordable homes | Section 80EEA | Check with a tax adviser for existing claims | Rs 1.5 lakh | Not allowed |
Section 24(b) interest deduction (now Section 22)
The home loan interest deduction allows up to Rs 2 lakh a year on a self-occupied home under the old regime. For a let-out home, the full interest can be deducted from the rent, but any loss from house property can be set off against salary or other income only up to Rs 2 lakh a year; the excess can be carried forward for eight years against future house-property income.
Two conditions matter. If the purchase or construction is not completed within five years from the end of the financial year in which the loan was taken, the deduction for a self-occupied home falls to Rs 30,000. Interest paid before construction is completed is claimed in five equal instalments starting in the year construction finishes, within the same annual limit.
Section 80C principal deduction (now Section 123)
The principal part of your EMIs, together with stamp duty and registration charges in the year you pay them, counts towards the Rs 1.5 lakh overall deduction that also covers items such as EPF, PPF and life insurance premiums. The principal deduction applies once construction is complete. If you sell the house within five years from the end of the financial year in which you took possession, the principal deductions already claimed are reversed and taxed in the year of sale; the interest deduction is not reversed.
What happened to Section 80EEA?
Section 80EEA gave first-time buyers an extra deduction of up to Rs 1.5 lakh a year on home loan interest, over and above the Rs 2 lakh limit, for homes with a stamp duty value of up to Rs 45 lakh. It applies only to loans sanctioned between 1 April 2019 and 31 March 2022, and it was not extended, so anyone taking a new home loan today cannot claim it. Borrowers who already qualified can continue to claim it under the old regime; because the Income-tax Act, 2025 reorganised the deductions, they should confirm with a tax adviser how the continuing claim is reported from tax year 2026-27.
Joint home loans double the household benefit
When two people are both co-owners of the property and co-borrowers on the loan, each can claim the interest deduction (up to Rs 2 lakh) and the principal deduction (within their own Rs 1.5 lakh limit) separately, in proportion to their share, under the old regime. A couple with a large loan can therefore claim up to Rs 4 lakh of interest and Rs 3 lakh of principal between them. Being a co-borrower without being a co-owner is not enough.
Old vs New Tax Regime: Which Suits a Home Loan Borrower?
The new tax regime, which became the default from financial year 2023-24 and is now in Section 202 of the Income-tax Act, 2025, has lower slab rates but removes the home loan deductions for a self-occupied home. The old regime keeps the deductions but has higher rates. Neither is automatically better.
- The old regime usually helps borrowers who pay close to Rs 2 lakh of interest a year and also use most of the Rs 1.5 lakh deduction, often in the early years of a large loan.
- The new regime often wins for borrowers with small loans, loans in later years when the interest share is low, or few other deductions.
- Compare every year: calculate your tax both ways before filing, because the answer changes as the interest share of your EMI falls. Our guide to income tax brackets in India explains how the slabs work.
Should You Choose a Floating or Fixed Home Loan Rate?
Most home loans in India carry a floating rate. Since 1 October 2019, the RBI has required banks to link new floating-rate retail loans, including home loans, to an external benchmark, and most banks use the RBI repo rate. The lender adds a spread to the benchmark, and the rate must be reset at least once every three months. This structure is called the external benchmark lending rate (EBLR) or repo-linked lending rate (RLLR).
As of September 2026, the RBI repo rate is 5.25%. The Monetary Policy Committee kept it unchanged at its meeting on 5 August 2026 and retained a neutral stance. When the repo rate falls, EBLR-linked loans reprice downward at the next reset; when it rises, EMIs or tenures go up.
| Feature | Floating rate (repo-linked) | Fixed rate |
|---|---|---|
| How the rate moves | Follows the benchmark, reset at least every three months | Stays the same for the fixed period set in the loan agreement |
| Typical starting rate | Usually lower | Usually higher than floating rates from the same lender |
| Prepayment charges | None for individuals on loans sanctioned or renewed from 1 January 2026 | May apply as per the loan agreement |
| Best for | Borrowers who can absorb some EMI changes | Borrowers who need a predictable EMI |
Under an RBI framework issued on 18 August 2023, lenders must tell floating-rate borrowers how a rate reset affects their EMI or tenure, let them choose between a higher EMI, a longer tenure or a combination, and offer an option to switch to a fixed rate at reset, as per the lender’s board-approved policy. Our explainer on fixed vs floating interest rates covers the trade-offs in more detail.
Check your spread, not just the headline rate
Two borrowers with the same bank can pay different rates because their spreads differ, often due to credit score or the date the loan was taken. If you took your loan under an older benchmark such as MCLR or base rate, ask your lender about moving to the repo-linked rate; a conversion fee may apply.
How Does Prepaying a Home Loan Save Money?
Prepaying a home loan saves money because every rupee of principal repaid early stops attracting interest for the rest of the tenure. Prepayments made in the early years, when most of each EMI goes to interest, save the most.
- No charges on most floating-rate loans: the Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025 bar prepayment charges on floating-rate loans to individuals for non-business purposes, whether the loan is repaid partly or fully and whatever the source of funds, for loans sanctioned or renewed on or after 1 January 2026.
- Reduce the tenure, not the EMI: keeping the EMI the same and shortening the tenure usually saves more interest than lowering the EMI.
- Weigh the tax effect: prepaying lowers the interest you can deduct, but paying Rs 1 of interest to save at most about 30 paise of tax (at the highest slab) is rarely a good trade.
- Keep an emergency fund first: money put into the loan is hard to get back quickly.
A home loan EMI calculator shows how much interest a given prepayment saves before you commit.
When Does a Home Loan Balance Transfer Make Sense?
A home loan balance transfer moves your outstanding loan to another lender that offers a lower rate. It makes sense when the rate gap is meaningful, a large balance remains and many years of tenure are left. Figures vary by lender, so compare offers on the same date.
- Ask your current lender to reduce your spread first; many will reprice to keep a good borrower.
- Add up the switching costs: processing fees, legal and valuation charges, and in some states stamp duty on the new mortgage.
- Compare the total interest saved over the remaining tenure with those costs.
- Collect the documents early: sanction letter, statement of account, list of property documents held by the lender and a foreclosure letter.
Our home loan balance transfer guide walks through the process, and the home loan documents checklist lists the paperwork most lenders ask for.
Can You Get a Government Interest Subsidy on a Home Loan?
The Pradhan Mantri Awas Yojana-Urban 2.0 (PMAY-U 2.0) Interest Subsidy Scheme offers eligible first-time buyers a 4% interest subsidy on the first Rs 8 lakh of a home loan, for loans of up to Rs 25 lakh on homes worth up to Rs 35 lakh. The subsidy is capped at Rs 1.80 lakh, paid in five yearly instalments, and applies to loans sanctioned on or after 1 September 2024. Households in the EWS, LIG and MIG categories with annual incomes of up to Rs 3 lakh, Rs 6 lakh and Rs 9 lakh respectively can apply through participating lenders. Check current eligibility with your lender, as scheme terms can change.
Common Mistakes That Cost Home Loan Borrowers Money
- Choosing a lender on a teaser rate: promotional rates, like the old 3.99% scheme above, often apply for a short period or to selected projects only.
- Ignoring the credit score until application day: check your CIBIL score a few months ahead so errors can be fixed.
- Claiming deductions under the wrong regime: home loan deductions for a self-occupied home do not apply under the new regime.
- Buying bundled insurance without reading it: compare the lender’s home loan protection cover with a standalone term plan before you sign.
- Never reviewing the rate: check your spread and the repo rate at least once a year.
Frequently Asked Questions
How much tax can I save on a home loan in India?
Under the old tax regime, a borrower can deduct up to Rs 2 lakh a year of interest on a self-occupied home and up to Rs 1.5 lakh of principal repayment (within the overall limit shared with other investments). The actual saving depends on your tax slab. Under the new regime, neither deduction is available for a self-occupied home.
Can I claim home loan interest under the new tax regime?
Home loan interest on a self-occupied house cannot be claimed under the new tax regime. For a let-out property, interest can be deducted from the rental income, but the resulting loss cannot be set off against other income or carried forward.
What are the new section numbers for Section 24(b) and Section 80C?
From 1 April 2026, under the Income-tax Act, 2025, the home loan interest deduction formerly in Section 24(b) is in Section 22, and the Section 80C deduction, including home loan principal, is in Section 123 read with Schedule XV. The limits remain Rs 2 lakh and Rs 1.5 lakh.
Is Section 80EEA still available for new home loans?
Section 80EEA is not available for new home loans. It covered only loans sanctioned between 1 April 2019 and 31 March 2022 for first-time buyers of homes with a stamp duty value of up to Rs 45 lakh, and it was not extended.
Are there charges for prepaying a floating-rate home loan?
Individual borrowers do not pay prepayment charges on floating-rate loans taken for non-business purposes and sanctioned or renewed on or after 1 January 2026, under the RBI’s Pre-payment Charges on Loans Directions, 2025. For older or fixed-rate loans, check your loan agreement.
What is the current repo rate for home loans?
The RBI repo rate was 5.25% as of September 2026, after the Monetary Policy Committee left it unchanged on 5 August 2026. Your home loan rate is the repo rate plus your lender’s spread, so it will be higher than 5.25%.
