Various Factors That Decide Your Property Loan Interest Rate!

A loan against property is one of the popular credit options that enable borrowers to fetch substantial loan amounts by pledging their tangible properties as collateral, thereby optimising their properties. However, before deciding on a loan option, borrowers must prioritise seeking the best the loan against property interest rate. Opting for a competitive interest rate will reduce the cost of borrowing and make the EMIs affordable.

Lenders assess several factors before levying an interest rate, about which borrowers must have a well-rounded idea as a minute change in the interest rate can result in considerable savings.

Know various factors which decide property loan interest rates

Before availing of a property loan, borrowers must consider the following factors that impact the interest rates:

  • Applicant’s profile

Applicants’ profiles, including their age, income status, place of residence, work type etc., have a bearing on the property loan interest rate. Borrowers nearing retirement age have questionable repayment potential; hence, they are charged higher interest rates than younger applicants.

Similarly, a person who does not have a stable source of earnings will be charged a higher interest rate than those with a steady income. This is why salaried applicants are offered lower interest rates than self-employed applicants.

  • Property to be mortgaged

The property in question plays a major role in determining the interest lenders will levy on borrowers. Lenders will scrutinise the property’s age, location and condition before deciding on the lending rate. As commercial and residential properties have different resale values, they attract different interest rates. Even on a commercial property loan, borrowers are charged a higher interest rate.

Moreover, properties in prime locations and pristine condition will secure lower interest rates owing to their high market value than an old-worn-out property located in a less-desired neighbourhood.

  • CIBIL score

A credit score indicates borrowers’ financial behaviour and credibility to the lender. Thus plays a significant role in deciding the interest rate. A healthy credit score of 750 and above works in favour of borrowers, helping them secure an advantageous lending rate. On the other hand, borrowers with a lower credit score are considered high, preventing them from receiving better interest rates. Hence, borrowers must strive to maintain a healthy score.

  • Interest types

Lenders generally offer two types of interest rates- fixed and floating on the loan amount. As the name suggests, a fixed interest rate remains the same throughout the repayment tenor, whereas a floating interest rate fluctuates as per the market condition. Borrowers who want certainty can go for a fixed interest rate. On the other hand, borrowers who want to reap a base rate cut or repo rate reduction can go for a floating interest rate.

  • Repayment tenor

The duration of the loan is another crucial parameter that influences the loan against property interest rate. Hence, borrowers should be mindful while choosing an optimum loan tenor. A long loan tenor reduces the EMI burden, making it easy for borrowers to repay the loan amount on time. As extended repayment duration makes repayment term convenient, lenders are willing to extend favourable interest rates. On the other hand, a shorter tenor makes lenders sceptical regarding borrower’s timely repayment, suggesting a higher risk of defaulting on the EMI payment

Furthermore, borrowers must know how to avail tax benefits on loan against property. Availing tax benefits allows borrowers to enjoy tax rebates on the interest repayment under Section 37(1) and Section 24(B) of the Income Tax Act. However, borrowers must ensure that the loan amount has been used to purchase a residential property.

Besides considering the interest rates, borrowers must understand other charges on loan against property, helping them make an informed decision and avoid unnecessary financial burdens.

Besides settling for a competitive interest rate, borrowers must seek pre-approved offers extended by leading financial institutions on various financial products like loans against property, home loans etc. These offers accelerate the lending process and reduce the hassles of documentation. Willing individuals can check their pre-approved offers by submitting their names and contact details.

To sum up, availing loan against property will only prove rewarding if borrowers settle for an affordable interest rate and are aware of the factors that affect the loan against property interest rate.

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