Finance

5 Factors that can Affect Property Loan Interest Rates

Interest rates on loans against property can contribute significantly to the cost-effectiveness as the extended tenor and sizeable EMIs of these advances can affect one’s repayment capacity. Also, as the loan amount is of high value, even a split-percentage increase in the lending rate can lead to substantial interest accumulation over its repayment timeline.

While lenders cover the risk of such long-term lending with interest charge, borrowers seek to reduce the repayment liability with affordable loan against property interest rates. The rates so fixed by a lender are, however, subject to a few crucial factors. By understanding such factors and making essential changes, individuals can avail reduced loan against property interest rate.

Top 5 factors that influence property loan rates

Choice of interest type

Typically, there are two types of loan against property interest rates applicable – floating and fixed rate. Depending on a borrower’s preference of interest type, the interest rate can change. 

Floating rates are chargeable based on the interest rate alterations that the lending market goes through. Hence, if the market rates reduce, individuals can expect similar reduction in their rate of interest, thus leading to lower monthly instalments and vice versa.

As for the fixed rate, it remains unchanged throughout the tenor irrespective of the market changes. Lenders sometimes also levy mixed rates that begin with interest chargeable at a fixed percentage for a given timeline, beyond which it accrues at the floating rate.

So, individuals should research properly and compare floating rate vs fixed rate to understand the better interest option for a loan against property.

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Down payment made

High-value purchases like vehicles or property often require individuals to make a down payment. When planning to make such a purchase with the loan amount, individuals should opt to go for a higher down payment. It helps improve one’s creditworthiness and allows him/her to negotiate for competitive loan against property interest rates. 

It also affects the LTV or loan to value ratio provided by lender, and allows them to offer a higher percentage of the property value as loan. LTV suggests the percentage of the property’s market value, which a lender is ready to provide as an advance.

CIBIL score

The credit rating of an individual weighs significantly on the lender’s decision regarding the property loan interest rates. A credit or CIBIL score reflects borrowers’ repayment habits, as well as credit discipline. 

A poor score or history means an unreliable financial behaviour, and thus leads financiers to levy higher interest rates. On the other hand, a strong credit profile with a high score reduces the risk of lending, and hence allows borrowers to negotiate for better rates.

Individuals should thus adopt the necessary steps that can help improve their credit score. Here are a few.

  • Individuals should prioritise timely repayment of debts as skipping or delaying any such payment can hurt their credit profile.
  • They should also avoid multiple loan applications at one time. Every such application invites a hard inquiry on their credit history, which is not considered as favourable credit behaviour by lenders.
  • Also, individuals should try to maintain an extended loan repayment history with responsible credit habits like timely repayments as it helps improve the score.
  • Property location
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The location of a property to be mortgaged also plays a crucial role in deciding one’s property loan interest rates. For example, if good amenities and transport facilities surround the locality where it is situated, the property holds promising resale value, thus reducing lender’s risk and attracting competitive rates. 

Contrarily, a neighbourhood with limited amenities may find a lower market value, thus standing low chances of attractive rates.

Employment profile

From financers’ perspective, stable and regular earnings represent promising credit capacity. Therefore, lenders can offer affordable loan against property interest rates to applicants with regular earnings like salaried professionals or non-salaried individuals with high and stable income. Government or PSU employees or those working in reputed private companies and MNCs also stand a better chance of securing competitive rates.

While opting for a loan against property, applicants should look for lenders who provide flexible tenor options of up to 20 years as well for convenient repayment, among other attractive features.

Such lending institutions also come up with pre-approved offers that can reduce the hassles of loan processing. These offers are available on several financial products, like home loans and loans against property. Applicants can view their pre-approved offer by submitting their name and mobile number.

As for the interest rate and loan affordability, individuals should manage their finances wisely as its underlying factors can affect the interest rate for a loan against property. Moreover, strict credit discipline and stable credit profile also increases one’s chances of availing loans and advances in the future.

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