Answer
(Fatwa: 1738/1213/L=1432)
It is haram as per the holy Quran to take interest based loan. The Prophet Muhammad (صلى الله عليه وسلم) has cursed those who take interest, give interest, write interest or bear witness to it. However, if the dealing is done with the bank in a way that first the bank buys the house and includes as much benefit it wants in its original price and sells the house to you on the total price and you pay its price in instalments then it is allowable.
Allah (Subhana Wa Ta’ala) knows Best
Darul Ifta,
Darul Uloom Deoband