When a borrower pledges real estate as security in exchange for funds, the loan availed of is termed a Loan Against Property. These loans come with end-use flexibility. Further, since the LTV ratio can go as high as 75%, LAP gives borrowers access to substantial funds, thereby allowing them to easily fulfil any personal or professional need. Further, fees and charges on property loans are low — processing fee varies from 0.25% to 2%.
Loans against property are a type of equitable mortgage. Thus, careful planning and designing one’s repayment strategy in advance is recommended.
The property loan interest rate that you get offered will determine the feasibility of your house mortgage loan and the chances of you defaulting on the loan. Property loan interest rates essentially refer to the cost of borrowing money or the cost of the privilege of using funds. High property interest rates lead to high EMIs, high cost of borrowing money and therefore, high chances of loan default.
Mortgage loan interest rates start from 8.40% per annum and securing low interest rates is possible only when one is familiar with the factors that affect the interest rates on property loans. Here, we discuss in detail the factors that impact property loan interest rates.
Factors that Impact Property Loan Interest Rates
Credit Score
An individual’s credit score is a statistical representation of their creditworthiness and repayment capacity. It is reflective of their attitude towards credit and how financially disciplined they are. High credit scores, i.e. scores in the range of 750 to 900, represent individuals with high creditworthiness and repayment capacity. Maintaining a high credit score requires one to maintain a clean repayment track record, a credit utilization ratio below 30% and a healthy mix of both secured and unsecured loans. It also requires one to not be excessively dependent on credit.
LTV Ratio
The LTV ratio gives one the percentage of the pledged collateral’s net market value that has been sanctioned as a loan. High LTV ratio loans include high loan values and therefore, chances of loan default are high in the case of high LTV ratio loans as compared to low LTV ratio loans. Borrowers trying to avail themselves of low property loan interest rates can benefit from keeping the LTV ratio low.
Quality of the Collateral
The quality of the pledged collateral also plays a determining role in helping lenders decide the rate of interest to be offered to a borrower. High-quality collaterals, such as flats and villas located in modern societies built by reputed builders, have high resale value and thus, such collaterals help borrowers negotiate for lower property loan interest rates. Further, some lenders offer loans at a lower rate of interest to individuals who pledge a self-occupied property as compared to individuals who pledge a property that is not self-occupied or was purchased only for an investment purpose.
Age and Income Stability
Young borrowers are offered property loans at lower interest rates as these individuals have more working years ahead of them and thus, are less likely to default on loan repayment. Similarly, lenders also try to win over individuals with stable incomes by offering them low interest rates on their loans.
Type of Interest Rate
Borrowers can avail property loan on fixed and floating interest rates. Fixed-interest rate loans remain unaffected by external market conditions and stay the same throughout the loan tenor. Floating interest rates, on the other hand, are linked to external market rates and change with the Floating Reference Rate or FRR. Floating interest rate loans tend to be cheaper than fixed interest rate loans.
Gender of the Loan Applicant
Lastly, the gender of the loan applicant matters. Many lenders offer lower interest rates to women borrowers. Thus, adding a female borrower to your loan application can help you avail yourself of a low-interest rate.
We sum up this article by sharing tips on what a borrower can do to avail of low mortgage loan interest rates.
Tips on How to Avail Yourself of a Low Mortgage Loan Interest Rate
Planning to apply for a mortgage loan? Here’s what you can do to avail yourself of low property loan interest rates.
- Make sure to have a credit score above 750. If your credit score is below 750, start working on improving your score immediately.
- Pledge a high-quality collateral.
- Apply with a lender with whom you already have a loan account. Lenders who have known you and have had the time to judge your financial habits for some time are more willing to negotiate on the loan terms and conditions.
- Keep the LTV ratio low by borrowing only what you need. Low LTV ratio loans not only attract a low rate of interest but are also easy to repay.
- Apply during the festive season when lenders promote offers on interest rates.
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