7 Key Factors Affecting the Interest Rate on a Mortgage Loan
A loan against property is a credit instrument that can be used for several requirements. For example, individuals can use the loan amount to purchase a new home or establish a new business. Nevertheless, borrowers should understand the factors affecting interest rates on mortgage loans.
Top seven factors that determine loan against property interest rates:
Here is the list of factors on which the interest rate on mortgage loan depend upon:
Age of the borrowerAge is one of the most crucial factors determining LAP interest rates. Young individuals are offered a lower interest rate on a mortgage loan than older applicants. This is because lending institutions believe that if a borrower has recently started working, he/she has time to establish a credit history with more earning potential in the future. Nevertheless, an individual between 30 to 35 years of age will have a stable career and a decent financial account. Therefore, lenders sanction such applications at a low-interest rate.
External factorsExternal factors, such as the RBI’s monetary policy, economic growth rate, and inflation rate affect the mortgage loan interest rates. All of these external factors are interlinked and affect the LAP interest rates in one way or another.
Type of propertyThe type of property that individual wishes to mortgage also affects the interest rates of a LAP. There are two types of properties, i.e., residential and commercial. If an applicant has valid ownership of the commercial property, he/she can expect a low interest rate on mortgage loan.
Location of the mortgaged property-
A property in a posh location, with all the basic amenities and good connectivity, tends to attract a low mortgage loan interest rate. This is because lenders can easily dispose of such properties and recover the unpaid dues in case of any credit defaults.
Loan repayment tenor-
A loan against property is one such credit facility that comes with a longer repayment tenor. However, a longer repayment tenor means higher interest rates. Willing borrowers should know the ways to determine the ideal repayment tenor for a loan against property and ensure that they get the lowest interest rate for the loan amount.
Loan amount-
The loan amount that an applicant borrows impacts the loan interest rate significantly. In case an applicant seeks a larger loan amount or the lender sanctions a larger LTV ratio for LAP, they have to pay a higher interest rate. This is because lenders consider a higher principal amount to be of high risk and vice versa.
Location of the mortgaged property:
A property in a posh location, with all the basic amenities and good connectivity, tends to attract a low mortgage loan interest rate. This is because lenders can easily dispose of such properties and recover the unpaid dues in case of any credit defaults.
Loan repayment tenor:
A loan against property is one such credit facility that comes with a longer repayment tenor. However, a longer repayment tenor means higher interest rates. Willing borrowers should know the ways to determine the ideal repayment tenor for a loan against property and ensure that they get the lowest interest rate for the loan amount.
Loan amount:
The loan amount that an applicant borrows impacts the loan interest rate significantly. In case an applicant seeks a larger loan amount or the lender sanctions a larger LTV ratio for LAP, they have to pay a higher interest rate. This is because lenders consider a higher principal amount to be of high risk and vice versa.
Type of interest
Another key factor that affects the interest rates on a loan against property is the type of interest. Lending institutions in India offer LAP at fixed and floating interest rates. A fixed interest rate remains unchanged throughout the repayment tenor, irrespective of fluctuations in the market. On the other hand, in the case of floating interest rates, market fluctuations affect the interest rates. Therefore, one should choose the type of interest wisely as per their financial capabilities.
Moreover, willing borrowers should know the eligibility criteria and the documentation required for a loan against property. Meeting these parameters will allow them to get the loan sanctioned within the shortest turnaround time and ensure a smooth borrowing experience.
To sum up, by focusing on the factors mentioned above, customers can improve their chances of ensuring the lowest loan against property interest rate. Hence, one should apply for this credit facility keeping these factors in mind, and enjoy a hassle- free borrowing experience. Several financial institutions in our country, such as Bajaj Finserv, extend pre-approved offers on their financial products, such as loans against property, home loans, etc. These exclusive offers streamline the application process and fasten the disbursal of loans significantly. To check the pre-approved offer, one needs to enter his/her name and contact details in the required section of the lender’s website.