Top 7 Factors That Determine Your Mortgage Loan Interest Rate

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interest rate on property loan
interest rate on property loan

Availing mortgage loans is an efficient way to receive substantial funds by leveraging a property’s equity against simple loan terms. Simultaneously, availing of a LAP obligates borrowers into a long term financial commitment.

Therefore, considering the terms associated with this financial product is crucial, especially the interest rate. The reason being, interest rate determines the total loan amount; thus, opting for the best possible option is imperative.

However, the interest rate on property loans can get influenced by certain factors, which, if managed properly, can provide a pleasant borrowing experience.

7 factors that affect the interest rate of mortgage loans

Here are some factors that can affect the loan against property interest rates, which potential LAP borrowers must be aware of –

  1. Credit profile of a debtor

The credit profile of an individual also plays an important role in determining the interest rate on property loan. Since this evaluation portrays the creditworthiness of a debtor, individuals with a low credit score and payment history plagued with delayed payments are regarded as unreliable borrowers. Thus, their loan against property application often entails a higher interest rate.

Therefore, potential borrowers must try to improve their credit profile to avail better interest rates on LAP.

  1. Borrower’s profile

Property loan interest rates are also dependent on factors like age, income profile, etc., of an applicant. For instance, a young salaried borrower would have a higher chance of receiving a reasonable interest than a retired applicant. The reason being, young applicants, with their remaining working years, has better chances of repaying their credit.

  1. Property type and location

The interest rate on loan against property is again dependent on the type and location of a property. Usually, residential properties at a prime location carry a higher resale value than one in a remote area. Therefore, properties at a prime location have a better chance of securing an attractive interest rate.

  1. Loan amount

The loan amount of a loan against proeprty also plays a part in determining its interest rate. Therefore, the relation between the loan amount and interest rate is directly proportionate, and with a high loan amount, one has to bear a higher LAP interest rate.

  1. Interest type

There are usually two types of interest rates on a LAP, i.e., fixed-rate and floating rate. This factor can impact the levied rate considerably. Fixed rates do not change with the market conditions while floating rates alter depending on the external benchmark rates. Therefore, potential borrowers must be aware of this factor before initiating an application.

  1. Debt-to-income Ratio

The debt-to-income ratio helps a lender to understand a borrower’s repayment capability. With the help of this ratio, lenders understand whether a borrower has enough disposable income to pay EMIs without default. In this regard, experts suggest that keeping this ratio under 40% is beneficial, as it proves financial stability. As a result, they can extend a high credit at a reasonable interest rate.

  1. Loan tenor

The tenor of property loan also influences its interest rate. In the case of a shorter tenor, one needs to pay high EMIs, but their overall interest outgo reduces. Conversely, choosing a longer tenor would decrease the EMI outgo but increases the total interest paid. Hence, potential borrowers should be calculative while choosing a loan tenor to avail the best possible interest rate.

Keeping these 7 factors in mind can help individuals to avail a competitive interest rate while availing a LAP. Also, pre-approved offers are extended by leading financial institutions to reduce the hassle of a loan application. Borrowers can check their pre-approved offers online in a few steps.

These are some of the factors that affect the mortgage loan interest rate. Apart from these points, individuals must also keep a tab on the eligibility and documentation to streamline their loan application. 

Read Also: Things To Remember While Availing A Loan against property

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