All of the people are aware of the term “loan against property”. If you require the money and have your own property then you can easily avail the property loan. It can be used for various purposes i.e, education, marriage, increasing your existing business, purchasing of new plot, medical emergency and much more.
But there are multiple parameters that can influence your loan against property interest rate. These basic factors cover everything from the location of your property to the down payment you can make. While choosing which loan to avail for your property these are some of the most important parameters to consider. Let’s have a look at it!
Basic Factors Which Affects On Loan Against Property Interest Rate:
●Location Of Property
The location of your property is one of the main factors here. This is because urbanised areas have higher rates of home prices than underdeveloped regions. For example, metro city properties cost way more than the ones located in the outskirts and beyond.
This can be an added advantage if your property location is at a favourable spot, which can fetch a higher selling price. This is why you need to check with multiple financial institutions before choosing one, and focus on how the location helps you negotiate for a better mortgage rate.
●Property Price And Amount Of Loan
A loan against property is calculated based on property price, closing costs, and the down payment. The down payment is then subtracted from the property price and closing costs.
With an increase in the loan amount the interest rate may decrease. The extent to which the property price influences the amount of loan you get varies from one financial institution to another.
The higher the down payment the lower the interest rate for a loan against property interest rate. If your stake in the said property is higher the lender institution is going to consider lowering the rate of interest for you.
Generally there are interest rate slabs. So it’s not a favour or a varying rate of interest for special clients but instead, the level of risk that determines this rate. For example, if you put down around 20% as down payment the level of risk lowers and so does your interest rate.
This will eventually cost you less money, to be honest. Even if the down payment amount is not 20% but close to it, the interest rate is lowered in most cases.
Besides this, if you get mortgage insurance, the interest rate can go down quite a bit. If both of these criteria are fulfilled, the amount of money you spend on interest rate is significantly lowered.
●Tenure Of Loan
The tenure of the loan and the interest rate has a critical relationship. It is one of the most important factor all of them. If you get a short tenure loan, interest rates will be lower. It must be kept in mind though, that the monthly payments are going to be higher in the case of short term loans.
So, before you hop on board with a lender institution check who can offer pre-term payments, lower interest rates within a short period.
Many institutions offer pre-term payments with a certain added cost. This is another parameter you need to consider in case you have opted for a long term loan. Let’s say you went for a 10-15 year period. The rate of interest will be higher in this case in comparison to short tenure.
●Credit Score and Outstanding Loans
Some institutions take into account how reliably you’ll pay off the loan. With a higher credit score, you can expect a lower rate of interest, provided you have a past history of loans. It’s best you have earlier debts paid off before your mortgage your property. The chances of getting a lower interest rate will increase.
In the end, there are tons of factors that can act as the deciding parameters of how low your interest rates can go. But these are the major factors which affect the property loan interest rate. The wise choice while applying loan against property is to understand the entire amount that you have to pay off within tenure and judge with respect to your cash flow. This will draw a very clear picture of how quickly you can pay off the borrowed amount.