A loan against property is a reliable source of funding that enables a borrower to get substantial funding to cover a variety of costs.
In this regard, loan against property interest rates in India is a crucial variable in deciding the monthly instalments and the overall affordability of the loan. So, before applying for a loan against property, prospective borrowers must learn about the factors that affect the interest rates.
6 Key factors that affect Loan Against Property interest rates in India
The top factors that affect the loan against property interest rates are:
The property loan tenor is a crucial factor in determining the interest rate on a loan against property. Typically, a mortgage loan is a long-term commitment, but individuals can choose one based on their ability to make repayment. However, lenders could view prospective applicants as a risky borrower if they pick a shorter duration for a high loan value. In this regard, the interest rates that lenders fix are typically higher.
Therefore, individuals can choose a longer tenor to get better interest rates, and it also substantially reduces monthly payments.
Property type and location
Even though any immovable asset qualifies for a loan against property, the type of asset significantly affects the mortgage loan rates. For example, lenders offer different interest rates for mortgaged businesses and residential properties. In addition, other factors, such as a property’s location and resale value, also affect this rate.
A property with modern amenities and a prominent location typically has a great resale value. As a result, if a prospective borrower pledges that asset, lenders can provide more value. Similar to this, the age of the property also has an impact on mortgage loan interest rates.
Mortgage loans are high-value credits, and lenders will lend up to Rs. 5 crores, depending on the candidate’s capability to meet the prerequisites and other parameters. However, because the monthly payments are greater with a high-value loan, lenders view it as riskier than other types. As a result, when the loan amount is large, they charge high property loan interest rates as compensation for the risk of borrowing.
Before deciding on mortgage interest rates, lenders also take into account borrowers’ credit histories and similar factors. The parameters that affect this are as follows:
- CIBIL score for property loan
- Credit utilisation ratio
- Existing debts
For receiving competitive interest rates from lenders, a credit score of at least 750 is preferred, as it increases the trustworthiness and creditworthiness of the candidate.
Similarly, a salaried individual close to his/her retirement is more likely to pay a higher interest rate than a younger applicant. Besides this, lenders also look at payment history to evaluate a candidate’s finances.
Income is also a crucial factor in determining the loan against property interest rate. For instance, a candidate with steady job and high salary is more trustworthy to a lender than an applicant with a low salary and an unsteady job profile. So, the former candidate can get a few benefits from the lender in the form of a truncated interest rate.
The policy rate directly affects the rate of interest. So, the current repo rate is an essential factor to take into account while deciding the interest rate. While availing a loan against property, if the repo rate is lower, an applicant is likely to receive a lower interest rate and vice versa.
However, before applying for a loan against property, lenders advise using a loan against property calculator to learn some essential information, such as the property loan EMI. Apart from this, this calculator offers an amortisation schedule with a thorough breakdown of funds over the entire tenor.
Additionally, a few reputed financial institutions provide pre-approved offers to streamline and quicken the loan application process. Such offers are available on a variety of financial instruments, including loan against property, home loans etc.
Hence, it is evident that there are various factors that affect the loan against property interest rates in India. So, prospective borrowers need to take care of all these to settle for an affordable borrowing option. However, other than this, they can also negotiate with the lender and must meet all prerequisites comfortably to earn their trust so that they can get a comparatively lower interest rate.