A loan against property is a type of mortgage loan where lenders provide high-quantum funds against an individual’s pledged asset. Besides knowing what is a mortgage loan, individuals should also consider the determinant factors that impact interest rates.
8 crucial factors responsible for a mortgage loan interest rate
- Loan type
The interest rate depends on the type of loan. There are different loan types available for mortgage, such as the loan against property, reverse mortgage loan, etc. Therefore, the interest rate may vary depending upon the loan type one chooses.
For example, a reverse mortgage loan is different from a loan against property where an individual mortgage his/her property to avail periodic payments against its market value.
- Loan tenor
The loan term denotes the repayment period for which a loan amount is sanctioned by financial institutions. Individuals can opt for a longer loan tenor to avail of reduced EMIs. However, one should know that the longer the repayment tenor, the higher the overall borrowing cost.
- Interest rate
There are two types of mortgage loan interest rates available for the borrowers- Fixed and floating. The fixed interest rate doesn’t change throughout a period. As a result, borrowers pay a fixed interest amount during the entire loan tenor without fluctuating. In comparison, floating interest rates vary according to the market.
Applicants opting for fixed interest will have to pay a certain fixed amount irrespective of a drop in the market rates.
- Credit score
The mortgage loan interest rate highly depends on an individual’s credit score. Lenders generally approve lower interest rates for individuals with a credit score of 750 and above. However, if the credit score is not high enough, individuals will have to pay a higher interest rate over the mortgage loan term, significantly increasing the borrowing cost.
Therefore, individuals must know how credit score affects loans against property eligibility and interest rates.
- Down payment
For higher down payments, lenders, in general, offer lower interest rates for a mortgage loan. Therefore, if an individual pays a higher down payment, he can lower interest charges significantly, thereby reducing the total borrowing cost.
- Location of the property
The location of the property is an important factor directly influencing the LAP interest rates. Properties situated in a prime location incur lower interest rates. Lenders approve mortgage loans on such properties easily.
- Type of property mortgaged
The type of property mortgaged highly affects the rate of interest offered by a financial institution for a loan against property. This rate varies from residential to commercial properties due to their different value.
- Borrower’s profile
An applicant’s age, city of residence, occupation, and monthly income determine the interest rate offered by a financial institution. Lenders usually offer better rates of interest to applicants early in their job rather than someone nearing his/her retirement.
Moreover, salaried individuals with a regular and fixed source of income are offered lower interest rates than self-employed applicants. However, the rate of interest and eligibility parameters vary across lenders, so applicants must conduct thorough research before settling for one.
Moreover, individuals searching for“how to apply for a mortgage loan” can follow the steps mentioned below.
Procedure to apply for a mortgage loan
Step 1:Visit the official website of your chosen lender, and fill the application form.
Step 2:Furnish all the details in the application form.
Step 3:Submit all the required documents.
Step 4: Wait for the representative to get in touch.
Step 5:Get approval for the loan disbursal upon meeting the eligibility criteria.
Moreover, interested individuals can check the list of documents needed to apply for a loan against a property. One more thing an individual can do is to compute the EMIs using a mortgage loan calculator. It is easily available on the websites of lenders.
Many leading financial institutions offer pre-approved loans to existing borrowers to streamline the application process. Such offers are available on several financial products like a home loan, loan against property, etc. you can check your pre-approved offer just by providing your name and contact number. Therefore, a borrower must consider these factors that impact the mortgage loan rate prior to applying. Hence by doing so, an individual can increase is/her chances of availing a loan easily.