Here’s why a home loan is cheaper for you than what the safest borrower in the country pays as interest

• Home loans have never been cheaper in the past one decade, and despite home prices being on the higher side, these rates present a good opportunity to buy a home.
• On the other hand, government borrowings are now more expensive than home loans, which might seem bizarre.
• However, there is a simpler explanation – read on to find out.

Home loans are at their lowest in the past one decade, with banks and financing companies offering interest rates as low as 6.4% per annum.

If you have been considering taking a home loan and buying your dream home, you might think this is perhaps a great time – and literally – a once-in-a-decade opportunity. More so when experts think home prices might not come down anytime soon. So, all things considered, the time does seem right.

But have you wondered that banks and finance companies are willing to offer you – an individual – a home loan at a cheaper rate than what the Indian government pays on its borrowings?


The gulf in home loan interest rates and what the Indian government pays is exaggerated even more when you consider the fact that an individual is much more likely to default on a loan than the Indian government.

What makes this even more absurd is the fact that not only can you borrow at a cheaper rate, but you can also claim deductions under the Income Tax Act, which further lowers your effective cost of borrowing, explained Vikram Kotak, cofounder of Ace Landsdowne Investments, in an interview with Business Insider.

Here are home loan interest rates offered by some of the most popular banks and finance companies in 2022:

Bank/Financier	Starting interest rate (per annum)
Union Bank of India	6.40%
Bank of Baroda	6.50%
Kotak Mahindra Bank	6.55%
HDFC	6.70%
ICICI Bank	6.70%
Citibank	6.75%
State Bank of India	6.75%
LIC Housing Finance	6.90%
Axis Bank	6.90%

Source: Banks, finance company websites

And here are the yields on government bonds:

Duration	Yield
1 year	4.57%
5 years	6.19%
10 years	6.88%
30 years	7.44%

Source: Investing.com

Higher the duration, higher the yield. Government bonds start to become more expensive than home loans from the 10-year tenure onwards.

So, what is the reason for this?

The explanation is simple – demand and supply.

At the moment, the government has a much higher borrowing programme, which means that it has to make it more lucrative to purchase its bonds by offering higher yields.

Since the COVID-19 pandemic, the Indian government has borrowed nearly ₹25 lakh crore, and it has a budget to borrow ₹11.6 lakh crore yet again next year.

Once the market absorbs these bonds and the supply comes down, these yields will start reducing.

On the other side, the Reserve Bank of India improved the liquidity in the system when the pandemic hit, but borrowings did not gather enough pace. This resulted in banks struggling to find ways to make money from the additional liquidity, and home loans were one of the avenues that they have explored by offering attractive rates of interest.

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