Mortgage loans, also known as property loans or loans against property, are a form of secured financing availed of against a residential or commercial property one owns.
Mortgage loans are one of the few financing tools that give borrowers access to substantial funds. Under these loans, one can expect to have 60% to 70% of the pledged property’s net market value sanctioned as a loan. Further, the mortgage loan interest rates are quite feasible and like home loans, mortgage loans are also repaid through EMIs, which helps manage loan repayment. Borrowers have the flexibility to choose the ideal repayment tenor for them based on their repayment capacity. The tenor can extend up to 17 years. Mortgage loan interest rates are low as the loan is backed by security. Further, these loans come with end-use flexibility. These factors have contributed significantly to the growing demand for mortgage loans.
A mortgage loan could be the answer to your many problems. However, those applying for a property loan should make the best efforts to avail of the loan at the lowest mortgage loan interest rates possible. Doing so would not only allow them to repay the loan comfortably through feasible and easy-to-pay EMIs but also keep the cost of borrowing low.
Factors that Impact Mortgage Loan Interest Rates and Tips on How to Avail of a Low-Interest-Rate Mortgage Loan
Credit Score
The credit score is a statistical representation of one’s creditworthiness and repayment capacity. It ranges from 300 to 900 and helps lenders accurately ascertain the risk involved in doing business with the loan applicant. A credit score in the range of 750 to 900 is considered excellent and such a credit score is reflective of high creditworthiness, good repayment capacity and in general, a responsible attitude towards credit. When individuals with such a credit score apply for a mortgage loan, loan approval comes quickly and at interest rates that are favourable to the borrower.
Tip: Check your credit score at least a few months before you plan to apply for a mortgage loan. If your credit score is unsatisfactory, take immediate steps to improve it and initiate the mortgage loan application only after your credit score has improved.
Loan-to-Value Ratio
The loan-to-value ratio refers to the percentage of the pledged property’s current market value that is being sanctioned as a loan. The loan-to-value ratio can be obtained by dividing the value of the loan by the total value of the property and multiplying the result by 100. High LTV ratio loans carry higher risk for lenders and therefore, these loans attract a higher mortgage loan interest rate.
Tip: To be eligible for the best mortgage loan interest rates, borrowers must not let their LTV ratio exceed 60%.
Quality of the Collateral
Since mortgage loans are a form of secured financing, the quality of the collateral is very important. High-value properties have high resale value and so, they minimize the risk for the lender. Thus, high resale value collaterals help borrowers avail of a loan on lower mortgage loan interest rates.
Tip: If you have more than two properties, to increase your chances of availing of a mortgage loan on low-interest rates and other favourable loan terms and conditions, pledge the property with higher resale value.
Income Stability
Individuals who switch jobs often or are involved in an unstable business may default on loan repayment. Lenders see them as risky borrowers, and therefore, such individuals are extended loans at high interest rates.
Tip: If you are planning to apply for mortgage loan shortly, maintain job stability. This will help you score lower interest rates.
Debt-to-Income Ratio
The debt-to-income ratio is important. A high debt-to-income ratio indicates that a considerable portion of your income is already going towards debt repayment, and therefore, the chances of loan default are high. A low debt-to-income ratio, on the other hand, portrays you as a responsible credit user.
Tip: If you want to make yourself eligible for the best mortgage loan deals, make sure no more than 36% of your income is going towards covering debt at the time of applying for the loan.
Concluding Remarks
Mortgage loans are an excellent financing option. These loans can help you take care of all your personal and professional needs related to housing or business. However, careful planning is important to avoid any difficult situations in the future.
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