Factors that Affect Your Mortgage Loan Interest Rates

Since one of the essential factors to consider when availing of a mortgage loan interest rates, intending borrowers must learn about the factors impacting it. Read on to know about the affecting mortgage loan interest rate.

A mortgage loan or loan against property is one of the most viable funding options to meet one’s varied personal and professional financial requirements. Since LAP is a secured variant and demands collateral as security, the mortgage loan interest rate is comparatively lower than other credit facilities.

Factors influencing the interest rate of mortgage loans:

As with any financing option, one of the crucial factors of a mortgage loan is the interest rate. If the rate is lower, the financial burden will also be lower. As it turns out, there is a multitude of aspects impacting mortgage loan interest rates. 

Here’s take an in-depth look at these factors:

Property’s profile

The property’s nature acts as a crucial aspect behind affecting the interest rate of loans against property. If you own a residential property and want to use it as high-value collateral, usually lenders analyze the property’s profile before arriving at the mortgage loan interest rates to be charged. This analysis considers factors like the property’s location and type, age, and current market value of the property, etc. 

Usually, borrowers owning commercial or residential properties in prime locations or neighborhoods attract more competitive interest rates than any property on the outskirts. This is because the former ensures higher market value than the latter.

Loan repayment tenor

The loan repayment tenor is another crucial factor in determining mortgage loan interest rates and EMIs. Usually, loan against property is long-term financial commitments for which borrowers need to shelve out a certain amount in the form of EMIs.

Naturally, borrowers opting for a shorter tenor are required to pay higher EMIs and vice-versa. Therefore, before planning to apply for a loan against property, borrowers must use an EMI calculator to determine the ideal tenor and choose a loan amount that suits their financial affordability and requirements.

Applicant’s credit score

Another important factor impacting mortgage loan interest rate is the CIBIL score. This score indicates a borrower’s creditworthiness and financial capacity to repay the debt without defaulting. Moreover, it significantly decides a borrower’s LAP eligibility and interest percentage on which the loan will be granted.

If the applicant’s credit score is on the higher side, it reduces the risk of default from the lender’s side. Moreover, any score above 650 is considered healthy and eligible to attract a lower interest rate against a mortgage loan. Now that borrowers know how credit scores affect loan against property eligibility, they must practice certain financial activities to improve their credit score and make borrowing affordable.

Borrower’s financial profile

An applicant’s financial profile significantly affects loan eligibility and interest rate. While reviewing a borrower’s loan application, lenders check his/her age, income source, repayment history, residence type etc. A borrower who is nearing retirement may get credit at a higher interest rate. Moreover, they may get a shorter repayment tenor to repay the debt, thereby leading to higher EMI payments. Likewise, borrowers with a lower income will also get substantial interest rates against their borrowed credit as the risk factors are higher from the lender’s side. However, eligibility parameters may differ across lenders.

Type of interest rate on the loan

Another significant aspect impacting mortgage loan interest rate is the type of interest rates chosen against LAP. Usually, lenders present two options such as fixed and floating interest rates for a mortgage loan. As the name defines, a fixed interest rate remains fixed throughout the repayment tenor, while floating rates tend to change based on the market rates. 

Since floating rates often change, they are comparatively lower than fixed rates by a small margin. Therefore, borrowers must carefully assess their financial affordability before opting for an interest rate to avoid any financial inconvenience later.

Now that borrowers are aware of the factors affecting LAP interest rates, it will allow them to make an informed decision when acquiring a loan against property. Besides these, existing loan borrowers from leading financial institutions can also get the benefit of pre-approved offers on a range of secured and unsecured financial products. By availing of these offers, borrowers can remove the hassle of extensive documentation and save time.

Whereas a mortgage loan is a safe and secure credit facility, people typically have little trouble obtaining the needed funding. Only loans against property are available to individuals in India among the various types of mortgage loans, as was already mentioned. Mortgage loans in English and usufruct are not governed by the RBI.

Summing Up:

Additionally, financial institutions provide several value-added services to improve the borrower experience. Leading financial organizations that offer pre-approved offers on various loan products, like mortgages and loans secured by real estate, among others. These offerings help a candidate save time on documentation while also streamlining the overall approval process. Existing borrowers can use their names and contact information to check their pre-approval offers.

Therefore, prospective borrowers can check their pre-approved offers by mentioning their names and contact details.Having said so, borrowers must not forget to check loan against property eligibility criteria specified by the lender when availing of such credit facilities. Moreover, by focusing on the above aspects, borrowers can improve their chances of availing of lower mortgage loan interest rate. However, borrowers can also compare different loan options extended by the lender before choosing the most affordable one.

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