Mortgage loans or loans against property are loans that people avail of against a residential or commercial property or land. The lender and the borrower enter a loan agreement per which the lender lends the loan borrower a pre-agreed amount which the borrower must repay through EMIs or equated monthly instalments over a specified period. Once the borrower repays the loan amount along with interest, the property gets transferred back into the borrower’s name. The mortgage loan EMIs that an individual pays are decided based on three considerations: loan amount, rate of interest and loan tenor.
The mortgage loan interest rates you get is one of the most important factors that affect the EMIs you will pay each month. The rate of interest not only affects your loan EMIs but also the total cost of borrowing money. Low mortgage loan interest rates lead to affordable loan EMIs. They also lead to low interest payout and therefore, reduced cost of borrowing money. Consequently, all loan-against-property borrowers are required to do thorough research and secure low mortgage loan interest rates. Here, we look at the different factors that impact loans against property interest rates.
Different Factors that Affect Loan Against Property Interest Rates
- CIBIL Score: The CIBIL score is the credit score assigned to credit users by TransUnion CIBIL, one of the four authorized credit information agencies operational in India. Your CIBIL score provides a peep into your credit history. It tells a lender whether or not you can be trusted with timely repayment of loan EMIs. A good CIBIL score will encourage your lender to consider you for the best or lowest mortgage loan interest rates alongside other beneficial loan terms and conditions. A low CIBIL score, on the other hand, will cause your lender to doubt your repayment capacity. This will either lead to the lender charging you a high rate of interest or rejecting your loan application altogether. The CIBIL score is an important facet of loan against property eligibility and applicants must apply for a loan against property only if their CIBIL score is at least 750.
- Quality of the Collateral: In the case of loan against property, it is the collateral that offsets the risk for the lender. Therefore, the quality of the collateral is of utmost importance. High-quality collaterals with high resale value instil stronger confidence in lenders and encourage them to sanction loans at lower mortgage loan interest rates. Low-value collaterals, on the other hand, often lead to the lender asking for a higher loan against property interest rate to offset the risk involved.
- Debt-to-Income Ratio: The debt-to-income ratio is important as it tells lenders what percentage of their total income a loan borrower directs towards repayment of debt. A high debt-to-income ratio is considered worrisome as it indicates that the loan borrower is already dedicating a significant portion of their income to repayment of debt and therefore, taking on the burden of another loan EMI may prove burdensome. Ideally, the lowest or the best mortgage loan interest rates are offered to those individuals whose debt-to-income ratio is below 40%. A higher debt-to-income ratio is often seen as a sign of concern and leads to lenders charging a high mortgage loan interest rate.
- LTV Ratio: The LTV ratio you opt for is also important. Under LAP or loans against property, the LTV ratio can be as high as 75%, especially in the case of low-value properties. However, borrowers must always try and go for a low LTV ratio loan, especially if they do not need a substantially high loan amount. Going for a low LTV ratio loan eases the burden of loan repayment due to low loan EMIs. Further, a lot LTV ratio loan involves a small loan amount and thus the chances of a loan default are also low in the case of such loans. Therefore, lenders generally charge a low rate of interest in the case of low LTV ratio loans.
- Opt for a Mortgage Loan Balance Transfer: Individuals currently repaying a loan who want to benefit from a lower property loan interest rate can transfer the remaining balance on their loan to another lender willing to refinance the loan on lower mortgage loan interest rates and other better loan terms and conditions.
