Home loans are set to turn cheaper with state-run Bank of Baroda on Monday lowering its rate to as low as 8.35 per cent — the lowest across industry –while some other lenders including Allahabad Bank and Bank of Maharashtra also cut their rates for housing and other loans.

Smaller private sector player Sundaram BNP Paribas Home Finance also announced a reduction in its rate for new housing loans with effect from tomorrow.

State-run Bank of Baroda (BoB) reduced its home loan rates by 70 basis points to 8.35 per cent, which will be applicable for customers having a strong Cibil score.

At 8.35 per cent, the rate is lower than industry leader State Bank of India's 8.50 per cent offer.

SBI and some other lenders, including private sector major HDFC Ltd, have already reduced their rates. Some experts have attributed reduction in interest rates to surge in deposits with the banks post demonentisation.

BoB said its existing customers whose loans are linked to base rate can also switch to the new MCLR regime without any additional charges.

However, several other lenders are charging a switchover fee, which is a minimum of INR 10,000 or 0.5 per cent of the outstanding loan amount in case of SBI.

Bank of Maharashtra has cut its benchmark MCLR (Marginal Cost of Funds based Lending Rate) by 30 bps effective January 7. It's one-year MCLR is set at 8.95 per cent.

Allahabad Bank said it has reduced its MCLR by 0.85 per cent to 8.60 per cent for 1 year tenor. With the reduction in this benchmark rate, home, car and other loans linked to MCLR would become cheaper.

Banks have switched to MCLR as their new benchmark lending rate from June last year, replacing the base rate system for new borrowers. It is calculated on the marginal cost of borrowing and return on net worth for banks. It was introduced by RBI to ensure fair interest rates to borrowers as well as banks.

However, some banks charge a premium over the MCLR to offer a loan.