Bumper Cut In Home Loan Rates? HDFC Bank Cuts Lending Interest Rates By 5 Bps; How EMIs Are Calculated?

The largest bank of India in terms of market value, HDFC Bank, has trimmed its Marginal Cost of Funds-based Lending Rates (MCLR) by 5 basis points on several tenures. This will impact home loans, personal loans and car loans’ EMIs linked to MCLR. The new rates have come into effect from July 7, 2026.

HDFC Bank MCLR Rates Cut

HDFC Bank lowered MCLR rates on overnight, one-month, three-month and six-month tenures by 5 basis points. Now, the new rates are:

– 8.05% each on overnight and one-month tenure.

– 8.20% on 3-month tenure.

– 8.35% on six-month tenure.

– 8.45% on 1-year tenure.

– 8.55% on 2-year tenure.

– 8.70% on 3-year tenure.

Will Home Loan Interest Rates Fall?

It needs to be noted that banks in India have shifted from MCLR to external lending rate which is linked to RBI’s policy repo rate. HDFC Bank has not made any changes to it. Hence, not all borrowers will be impacted by the latest revision in MCLR.

With effect from April 1, 2016, all floating rate rupee loans sanctioned and renewed were directed by RBI to be priced concerning the Marginal Cost of Funds based Lending Rate (MCLR) which was introduced as the internal benchmark for banks.

However, from October 1, 2019, RBI introduced external benchmark lending rates including linking lending rates with policy repo rates. And directed the scheduled commercial banks to transmit to external benchmarks since MCLR did not deliver effective transmission of monetary policy. However, existing loans and credit limits linked to the MCLR/Baserate/BPLR will continue till repayment or renewal, as the case may be.

HDFC Bank Home Loan Interest Rates:

Currently, HDFC Bank offers 7.75% rate to 13.20% interest rates on all home loans to salaried and self-employed individuals. All rates are benchmarked to Policy Repo Rate which is currently at 5.25%.

The home loan rates are derived after adding policy repo rate with spread rates which is at 2.50% to 7.95%. Hence, 5.25% + 2.50% to 7.95% = 7.75% to 13.20%.

Factors affects Home Loan Interest Rates

As per HDFC Bank, following factors impact the interest rates on your home loans:

1. Credit score: Your credit score plays a crucial role in determining the rate of interest on home loan. A higher credit score often results in a more favorable rate, as it reflects your creditworthiness.

2. Loan amount: The amount you borrow can impact the interest rate. Generally, lower loan-to-value ratios may attract more competitive rates.

3. Type of interest rate: Whether you choose a fixed or floating interest rate can influence your home loan rate. Fixed rates provide stability, while floating rates may vary based on market conditions.

4. Income and employment stability: Lenders often consider your income and employment history. Stable income and employment can positively influence the interest rate offered.

5. Market conditions: Home loan interest rates are also influenced by broader macro economic factors and market conditions. Changes in the economic landscape can impact rates.

How EMIs Are Calculated?

EMI stands for Equated Monthly Installment. It includes repayment of the principal amount and payment of the interest on the outstanding amount of your home loan. A longer loan tenure (for a maximum period of 30 years) helps in reducing the EMI, as per HDFC Bank website. The formula is:

P x R x (1+R)^N / [(1+R)^N-1] where-

P = Principal loan amount

N = Loan tenure in months

R = Monthly interest rate

The rate of interest (R) on your loan is calculated per month.

R = Annual Rate of interest/12/100

For example, If a person avails a loan of ₹10,00,000 at an annual interest rate of 7.2% for a tenure of 120 months (10 years), then his EMI will be calculated as under:

EMI= Rs 10,00,000 * 0.006 * (1 + 0.006)120 / ((1 + 0.006)120 – 1) = Rs 11,714.