A loan against property or mortgage loan is one of the most preferred monetary agencies to finance big-ticket expenses. In such, it is a secured funding avenue that individuals can acquire by tapping into the equity of their owned properties.
Moreover, individuals can utilise this credit facility to defray numerous kinds of expenses, like a child’s higher education, debt consolidation, home renovation, etc.
Furthermore, by virtue of being secured, it also invites moderate mortgage interest rates in comparison to its unsecured counterparts. However, as it is of high value, even a moderate rate might accrue substantial interests over time. Therefore, taking measures to lower such interest rates even by a fraction of a percentage can lead to savings worth thousands of rupees.
Then, before availing a mortgage loan, individuals must duly take into consideration the factors that can decrease their interest rates to maximise their benefits from this credit facility.
Factors affecting interest rates for a mortgage loan
Here are the factors that influence mortgage interest rates –
Age of the applicant
One of the primary parameters that financial institutions look into when determining the interest rates for a loan against property is the age of an applicant. An applicant’s age is a significant determinant because that has a considerable bearing on his/her repayment capabilities.
In such, an individual of a young age would be more capable of repaying a high-ticket loan compared to one who is nearing retirement, in the eyes of financial institutions.
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Occupation of applicant
Another crucial factor that plays a critical role in the determination of interest rates for a mortgage loan is an applicant’s occupation. It directly correlates to an individual’s income and financial footing and therefore, is representative of their repayment capability. Thence, it is one of the essential factors that affect the interest rate for a loan against property.
For instance, if an individual is salaried and that too in a reputed organisation, it is suggestive of his/her steady and stable source of income – a profile that is less likely to prove delinquent. Therefore, such individuals are more likely to invite a lower rate of interest. However, self-employed individuals with a well-established income source can also fetch affordable interest rates on mortgage loans.
A credit score is perhaps the go-to determinant for interest rates for any sort of credit facility. It is a valid and quantifiable representation of an applicant’s credibility as a borrower and also his/her credit behaviour. Therefore, applicants’ credit score affects their loan against property eligibility that, in turn, influences the interest rate on their mortgage loans.
A high score, especially above 750, is more likely to fetch competitive interest rates. Conversely, a score lower than that implies low credibility and prompts lenders to levy high-interest rates.
The type of property to be collateralized for a loan also has a significant bearing on its interest rate. Individuals can mortgage a residential property – self-inhabited or let out – as well as commercial properties for a loan against property. However, lenders levy a lower interest rate when the mortgaged property is of residential kind rather than commercial.
Furthermore, the location of such property and its age as well also influences the interest rate on such loan. That is also the reason why property papers are the most critical of all mortgage loan documents.
The quantum of loan an individual can avail depends on the appraised value of a property. Some lenders offer up to 75% of property value as a loan against property. However, a high loan to value ratio also entails a higher interest rate on account of the risk a lender is taking. Therefore, individuals can opt for a low loan amount to lower their mortgage interest rates when availing a loan against property.
Nevertheless, applicants must duly consider these factors as well as the repayment tenor they opt to lower their mortgage interest rates. Some lenders might levy a higher interest rate if an applicant chooses a short repayment tenor.
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