An interest rate war is brewing in the home loans this festive season. Development Credit Bank (DCB) and GIC Housing offering home loans below the psychological 8%. DCB, which recently entered the segment, is offering home loans at 7.95% for loans up to Rs 5 crore at fixed interest rate for the first year and floating rates from year two.

“While affordable housing is the buzzword these days, the market would get a further boost if attractive financing options are available,” says Praveen Kutty, executive vice-president and head, retail banking, DCB.

Central Bank of India and Punjab National Bank have waived off processing fee and documentation charges on certain loans. While one would argue that there isn’t much difference between 7.95% and 8% home loans, bankers say that it is basically a psychological pricing to get more borrowers into their fold.

According to bank observers, borrowers prefer low interest bearing home loan accounts of nationalized banks over private banks. “While there has been demand for home loans in the affordable home loan segment (up to Rs 30 lakh), the activity in the upper bracket (loans above Rs 50 lakh) has mostly revolved around restructuring or takeover of such accounts by another bank,” says VS Reddy, managing director, Lakshmi Vilas Bank.