A loan against property brings along a lump sum funding opportunity for households and businesses both to help them fulfil their big ticket funding needs conveniently. These are often long-term advances whose repayment tenures extend over 15 years. The loan option comes with interesting financing features that make it suitable to borrow affordably. The loan against property interest rate is one such aspect that keeps the cost of the loan in check. Several factors contribute to the levy of property loan interest rates, which can be useful to understand when making a borrowing decision. It not only helps understand the rates applicable to your loan but also assist in taking necessary steps that can prompt a reduction of the final rate levy.
We have thus brought to you a bunch of essential things you need to know about the interest rates levied on loan against property for a better understanding of the loan features. Let’s check them out.
Secured Nature of Financing Keeps the Rates in Check
A loan against property is a secured advance that is backed by either a residential or a commercial property. Thus, irrespective of whether you are availing a business loan against property or one for household financing, it has to be backed by an asset of your choice. The secured nature of this loan thus also reduces the risk that a lender holds, leading them to provide financing at low rates of interest, at least lower than those applicable to unsecured advances.
Borrowers Can Choose Between Fixed and Floating Rates
The loan against property interest rates are set as per either the fixed or the floating rate levy system. Under the fixed rate system, the loan carries a set rate of levy throughout the tenure as was agreed during the loan sanctioning and agreement. Contrarily, under the floating rate system, interest rate on these the loan is set to change as per the market levy trends running and monetary policy recommendations. Both the levy types have their sets of pros and cons that one needs to understand before choosing either. For instance, while the fixed rate system leads to a levy at a notch higher rate than the floating rate, it also shields the borrower from increasing rate trends. Similarly, choosing the floating rate can be useful if the market rates are expected to reduce in the future.
Individual Borrowing Profile Contributes Significantly to Interest Rate
The interest rate on property loan is a reflection of the risk associated with it as a lending instrument to the lender. As such, the individual’s borrowing profile contributes significantly to the final levy that the loan attracts. Several factors related to the borrower’s profile impact the ultimate loan against property interest rate levy. Some of them include –
- Monthly income of the individual
- Existing fixed repayment liability every month
- Credit utilisation periodically
- Overall repayment capacity
- Value of the property to be mortgaged
- Age and condition of the property
- Amenities in and around the property
Choice of Borrowing Value Can Impact the Rates
The loan amount that you choose to avail can also contribute to determining the loan against property interest rate levy from your lender. It is because the loan amount selected ultimately determines the EMIs payable and thus enabling repayment capacity estimation.
A High Loan LTV May Also Mean High Rates
LTV or Loan to Value ratio indicates how much the lender is ready to provide as financing to someone as a percentage of the mortgaged property’s current market value. LTV for property loans can go up to 90% with the best lenders. However, a high LTV also incites a higher lending risk for financiers, thus leading them to charge a higher rate. Thus, to avoid such levy, you can choose to borrow at a low LTV.
Individual Credit Score Bears a Hold on Interest Determination
Even though credit score does not form a necessary eligibility requirement for property loan, it can contribute to interest rate determination as it serves as a parameter of creditworthiness determination. To better your chances at low rates levy, apply for the loan with a credit score above 750.
While these are a host of factors that contribute to the loan against property interest rates, well-thought borrowing decisions help bring down the final levy. Alongside, you must also check other fees and charges applicable on the loan to keep yourself aware of the total cost of your property loan. If you have already borrowed the advance, opting for a balance transfer facility after the payment of a few EMIs can still help reduce your interest liability.
