Loan against property is a high-value secured advance that comes with a long tenure for easy repayment. These loans have been one of the most popular big-ticket financing options due to their easy affordability for property owners and flexibility of use. Thanks to the zero restriction to end-use, a loan against property can be put to several uses, from professional to personal. Many businesses resort to a property loan to fulfil their financing needs with ease. Loan against property interest rates are low too as compared to several other unsecured advances, making them affordable financing options despite a financing of high value.
The interest rate you first check on these loans is, however, not certainly the rate that would be levied on your property loan borrowing. It is because such rate is subject to various factors that impact the risk associated with a borrower and other related aspects. It is important that you know the factors which can impact your property loan rates to better make your borrowing decision. Below are given some important ones to check.
Critical Factors That Affect Property Loan Rates
Type of property mortgaged
The loan against property interest rates are directly impacted by the associated risk factors. The property type mortgaged is one of them. Lenders usually allow property loan borrowing against residential and commercial property mortgage. Between them, however, the market values of the two property types can vary significantly depending on their locations and available amenities, which thus imposes the risks involved for loan recovery in case of repayment delay.
It is thus important that you consider the value of property to be mortgaged along with available amenities and location. Accordingly, you can negotiate with the lender for the applicable interest to secure the best rates on your advance.
Type of interest levy Selected
Interest on loan against property is levied based on the floating and fixed rate system. The two types of interest computations, along with impacting your loan liability, also vary in their rate levy. Usually, fixed interest is levied at a notch higher rate than the floating system, which makes it costlier. Also, the benefits derived from each one can differ, making the ultimate interest rate levy vary for each. For instance, under fixed levy system, interest is applicable at the same rate throughout the tenure, depriving the borrowing of any market trend benefits. Contrarily, floating rate allows borrowers to benefit from market rate variations but also carries the risk of high rate levy in case of rising interest rates and policy changes.
Profile of the applicant
An applicant’s borrowing profile comprises essential factors like income stability, type of occupation, city of residence, property valuation, etc., all of which indicate associated risk factors. Thus, if your income is stable and meets the minimum lender requirement along with a suitable occupation, the chances of you securing reduced loan against property interest rates remain high. You can leverage such factors to negotiate for better rates on the advance for improved affordability.
Although credit score impact in interest rates sounds like a long shot in the case of secured advances like loans against property, the factor can contribute significantly to the overall leverage you carry when negotiating. It is because your credit score is an indicator of how well you have practiced financial discipline such as borrowing mix, repayment timings, existing dues, and such other aspects. It is always ideal to hold a credit score above 700 so that you can utilise it to your advantage when negotiating your property loan rates.
Repayment tenure selected
The repayment tenure you select, or the lender decides for you also impacts the overall rate levy on your property loan. The tenure availed is an indicator of a borrower’s repayment capacity, with long tenures indicating lower capacities, thus increasing interest rate levy and shorter tenures attracting lower levies. It is thus crucial that you keep a check on your repayment capacity and try improving it through ways like repaying existing debts, applying for a lower loan amount than maximum eligibility, etc.
The tenure selected also impacts the overall interest accrual on your property loan and determines the total affordability. Longer tenures obviously mean higher interest payables ad vice versa. Thus, it is always wise to go for shorter tenures even though the option to avail an extended tenure exists.
Loan to Value ratio
The LTV or Loan to Value ratio is a percentage determination of mortgaged asset’s current market value that caps the maximum loan availability for a borrower. In the case of property loans, LTV with the best lender can go up to 80%, allowing financing of high value. While this maximises loan amount availability, it also leads to higher interest levy due to the increased lending risk involved. Choosing to avail a loan amount lower than the maximum LTV availability can help secured lower rates on your property loan.
Apart from loan against property interest rates reduction, you can also attempt to reduce the overall loan liability by managing your loan well. For instance, you can select the right lender and opt for a balance transfer facility to secure the best rates on your advance.