A loan against property is available for individuals and businesses looking for large sums to achieve their goals demanding a significant amount of money. Borrowers should know that availing a low-interest rate on a loan against property requires careful planning. Therefore, to improve the odds of securing a competitive rate on credit, one should be aware of the factors that come into play while deciding the mortgage loan rates.
Loans against property interest rates are based on multiple factors, including the credit score of the applicant, nature of work, income level, property size, location, loan tenure, etc. Read on to learn about each of them in detail to get an instant loan against property.
Tips to Get a Low-Interest Loan Against Property
A loan against property can provide you with adequate funds, up to Rs.5 crores, at low interest rates if you follow these tips and tricks:
Consider Shorter Loan Tenure
One of the influential factors for loan interest rates is loan tenure. Lenders consider the repayment tenure a borrower selects to determine the loan interest rate. They may offer a higher interest rate for shorter-term loans than long-term ones considering the increased credit risk. Therefore, borrowers should choose the shortest possible tenure depending on their current standing and expected cash flow.
Many borrowers consider a long tenure to repay the loan conveniently. But it results in a higher interest rate comparatively. Borrowers should keep in mind that short-term tenure may increase the loan against property EMI (Equated Monthly Instalment). Therefore, it is necessary to ensure that they can pay the monthly installment timely and regularly without any financial burden.
Maintain a High Credit Score
A borrower’s credit score is a crucial eligibility criterion for every lending institution. It indicates the borrower’s creditworthiness and impacts the loan interest rates hugely.
Lending institutions regard a score over 700 as a healthy one, and those applicants can avail of better rates compared to those with a low score. A low credit score refers to a high-risk borrower for lenders, and it may offer a loan at a higher interest rate comparatively. The lender can even decline a loan application with a low credit score.
Property Age, Location, and Maintenance
The location, age, and type of the property are often considered to determine a loan against property interest rates.
- Properties in prime locations with great amenities attract more buyers. Therefore, it holds a better resale value as well. Resultant lending institutions are more inclined to offer a loan against property at low-interest rates.
- Also, the age of the property to be collateralized plays a vital role. If the borrower wants to pledge a home that is about 15 years old, the chances of getting a loan against property at better rates get increased as compared to an applicant collateralizing a house that is 30 years old.
- Similarly, if you have maintained your house or property well, it may attract a lower interest rate.
- A loan against a commercial property bears different interest rates than residential property. An owner of a commercial property in a prime location and maintained well can be eligible for a higher loan amount at a lower interest rate.
Another major factor affecting a loan against property interest rate includes the borrower’s profile – age, income, employment stability, current employer, etc.
Lenders may offer a loan at a higher interest rate to an individual near their retirement than a younger applicant. Similarly, there is a higher chance that a salaried individual obtains a loan against property at a lower interest rate as compared to a self-employed applicant. It is because individuals with a fixed monthly income are more likely to make timely payments towards the loan against property EMI.
Reduce the LTV Ratio
Borrowers can reduce the interest rate by paying a high down payment. It reduces the loan-to-value (LTV) ratio and reduces the credit risk for the lender.
For instance, if a borrower wants to buy a home worth Rs.80 lakhs. The offered loan amount is Rs.70-75 lakhs. The borrower needs to arrange the remaining as a down payment. The borrower can increase the down payment amount to reduce the total outstanding. It makes the lender offer a more competitive interest rate on the loan.
Individuals who meet the lender’s eligibility criteria for a loan against property effectively and follow these simple steps can access up to 70% of the pledged property at a low-interest rate.
Interest rates determine the affordability of a loan against property. Therefore, availing the most competitive rate on a loan against property is vital. Meet the eligibility criteria well, maintain a high credit score, consider a shorter-term repayment tenure, and apply for the required loan amount only to enjoy lower interest rates and reduce the financial burden of repayment.