Short answer: A home loan is a long-tenure secured loan, usually 15–30 years, to buy, build or extend a house. The house itself is the security. Most bank home loans for individuals are floating-rate and linked to an external benchmark such as the RBI repo rate, so your EMI or tenure moves when the repo rate changes. Before you apply, check eligibility (income, FOIR, credit score), the loan-to-value limit, total cost including fees, and the tax position under the Income-tax Act, 2025.
Last updated: 13 October 2026.
This hub explains how home loans work in India in 2026 and links to our detailed guides and calculators on each step: eligibility, EMIs, tax, balance transfers, choosing a lender and what to do if a builder project runs into trouble.
How a home loan works
You pay the down payment (the margin) and the lender funds the rest, either in one go for a ready flat or in stages for an under-construction property. The lender registers a mortgage on the property until the loan is repaid. You repay through monthly EMIs, which contain interest and principal.
In the early years most of each EMI goes to interest. On a ₹40,00,000 loan at 8.5% for 20 years, the EMI is about ₹34,713, and roughly ₹3.37 lakh of the first year’s ₹4.17 lakh in EMIs is interest. Our explainer on why EMIs are front-loaded with interest walks through the maths.
Key terms to understand
| Term | What it means for you |
|---|---|
| Loan-to-value (LTV) | The share of the property value a lender can fund. RBI caps it in slabs: higher for smaller loans (up to 90% for loans up to ₹30 lakh) and lower for bigger loans. Stamp duty and registration are usually excluded from the property value. |
| External benchmark (EBLR) | Most floating-rate home loans from banks are linked to an external benchmark, commonly the repo rate. Your rate = benchmark + spread. |
| Spread | The lender’s margin over the benchmark. It is fixed at sanction unless your credit risk changes substantially, so negotiate it. |
| FOIR | Fixed obligations to income ratio: all EMIs as a share of monthly income. Lenders usually want it within a set band; see the FOIR eligibility calculator. |
| Pre-EMI | Interest-only payments on the disbursed amount while a property is under construction. |
| KFS | The Key Facts Statement lenders must give you before you sign, showing the annual percentage rate (APR), fees and repayment schedule. |
What changed in 2026
- Repo rate is up. On 7 October 2026 the RBI’s Monetary Policy Committee raised the repo rate by 25 basis points to 5.50% and moved its stance to “calibrated tightening” (RBI policy statement). Repo-linked home loans will reset upward at the next reset date in your loan agreement.
- No prepayment charges on floating-rate loans. Under RBI directions applying to loans sanctioned or renewed from 1 January 2026, regulated lenders cannot levy prepayment or foreclosure charges on floating-rate loans taken by individuals for non-business purposes, and cannot impose a minimum lock-in before prepayment.
- New tax law. The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026. The old “section 24(b)” and “section 80C” references have new section numbers (see below).
What a 0.25% rate rise does to your EMI
On a ₹40 lakh, 20-year loan, a move from 8.5% to 8.75% raises the EMI from about ₹34,713 to ₹35,348 (roughly ₹635 a month). If the lender keeps the EMI unchanged instead, the remaining tenure stretches by about a year. Ask your lender which option it applies; RBI rules require lenders to let you choose between a higher EMI, a longer tenure or a mix, within limits. Our note on how interest rates affect home prices covers the wider effect.
Eligibility and documents
- Income and stability: salaried applicants usually show salary slips, Form 16 and bank statements; self-employed applicants show ITRs, financials and GST returns.
- Credit score: check your CIBIL report before applying and fix genuine errors; a clean repayment record matters more than any single number.
- Age and tenure: lenders usually want the loan closed by a set retirement or maximum age.
- Property papers: title chain, approved plan, RERA registration for new projects, and an occupancy or completion certificate where applicable.
Bank or housing finance company?
Banks, housing finance companies (HFCs) and some NBFCs all offer home loans. Banks’ floating rates are tied to an external benchmark; HFCs often price off their own reference rate, which can move differently. HFCs may be more flexible on income documentation. Compare the APR in the KFS, not just the headline rate. Our guide on choosing between banks and housing finance companies goes deeper.
Tax benefits under the Income-tax Act, 2025
| Benefit | Old 1961 Act reference | 2025 Act reference | Regime |
|---|---|---|---|
| Interest on a self-occupied house, up to ₹2,00,000 a year | Section 24(b) | Section 22 (Income Tax Department text) | Old regime only |
| Principal repaid, within the overall ₹1,50,000 limit | Section 80C | Section 123 | Old regime only |
| Interest on a let-out house | Section 24(b) | Section 22 | Both regimes, subject to set-off limits |
Most salaried people are now on the new regime by default, where self-occupied home loan deductions are not available. Run both regimes before choosing. See our income tax hub and the guide to saving tax with home loan interest.
Government support: PMAY-U 2.0
Under the Interest Subsidy Scheme of PMAY-Urban 2.0, eligible EWS, LIG and MIG households (annual income up to ₹9 lakh) buying their first pucca house worth up to ₹35 lakh can get a 4% interest subsidy on the first ₹8 lakh of a loan of up to ₹25 lakh, up to ₹1.80 lakh, paid in yearly instalments. Check current terms on the PMAY-U 2.0 ISS page.
After you take the loan
- Prepay when you can. Even one extra EMI a year can cut years off a 20-year loan, and floating-rate individual loans carry no prepayment charge.
- Review your rate. If your spread is high, ask your lender for a conversion or consider a home loan balance transfer. The balance transfer calculator shows whether savings beat the switching costs.
- Protect the family. Understand what happens to a loan if the borrower dies and consider adequate term cover.
- Builder delays. If a project stalls, read what to do if RERA declares your project lapsed.
Compare home loan offers from RBI-regulated lenders and check your eligibility in minutes.
Buy or rent?
A home loan is a 15–30 year commitment. If you are unsure, weigh the advantages of owning a home against the flexibility of renting. A common rule of thumb is to keep the home loan EMI well within your FOIR limit so you can still save and handle a rate rise.
Frequently asked questions
How much home loan can I get on my salary?
It depends on your net income, existing EMIs, age, credit history and the property’s value. Lenders cap total EMIs at a share of income (FOIR) and the loan at the RBI loan-to-value limit. Use a FOIR calculator for an estimate, then confirm with the lender.
Will my EMI go up after the October 2026 repo hike?
If your loan is linked to the repo rate, your rate will reset at the next reset date in your agreement. The lender may raise the EMI or extend the tenure; you can ask for the option that suits you.
Can I prepay my home loan without a penalty?
Yes for floating-rate home loans taken by individuals for non-business purposes. Fixed-rate loans may carry charges as per your agreement and KFS.
Can I claim home loan interest under the new tax regime?
Not for a self-occupied house. The ₹2 lakh interest deduction (now under section 22 of the Income-tax Act, 2025) and the principal deduction under section 123 are old-regime benefits.
Is stamp duty included in the loan?
Usually not. RBI’s LTV rules generally exclude stamp duty and registration from the property value, so budget for them separately.
Sources
- RBI Monetary Policy Statement, 7 October 2026
- Income-tax Act, 2025, section 22 (Income Tax Department)
- PMAY-U 2.0 Interest Subsidy Scheme
Disclosure: FundsTiger (Gatimaan Finance Advisors Pvt. Ltd.) is a loan marketplace and lending service provider for RBI-regulated lenders. Aparampaar Finance Pvt. Ltd. (Omozing), one of those lenders, is a related party of FundsTiger. This article is general information, not financial advice. Read your loan agreement and KFS before you decide.