Loan against property (LAP) is a type of mortgage loan which allows lenders to secure credit by pledging their existing property. Depending on the property’s market condition and the lender’s policies, one can secure about 40-70% of its market value.
However, before opting for LAP, it is important to consider the primary factors that affect the mortgage loan interest to make the right lender choice. Therefore, this article discusses the five key factors influencing LAP rates.
5 Factors that Determine the Loan Against Property Interest:
Interest rate on a mortgage loan is not fixed and depends on several factors.
In the case of a loan against property, the 5 top determining factors include:
Type of property to be mortgaged
A Loan against property interest rates depends on the type of property that is being pledged. For instance, the interest rates for residential properties will vary from those for commercial ones. Lenders will also want to know about the location, age, and condition of the property to have an estimate of its value.
Therefore, if one pledges a premium property in a demanding location, it will automatically reduce the risk of diminished market value, thereby fetching a lower interest rate.
Credit score–
The credit score is one of the first things lenders check while reviewing a loan applicant’s profile. Credit score reflects the reliability of a loan seeker in repaying the credit within due time. Therefore, people with a higher credit score are likely to receive lower interest rates along with other benefits. Generally, a credit score above 750 is considered good for securing loans.
Moreover, credit score affects the loan against property eligibility. Therefore, to maintain a healthy score, one must clear their outstanding dues, pay bills on time, and keep a clean credit history.
Loan tenor–
Loan term or tenor refers to the period borrowers need to repay the loan they secure. The loan repayment amount includes the amount secured by the borrower, plus interests and added charges. If the tenor and interest rates are fixed, it will also help the borrowers understand the charges on their loan against property.
So, naturally, if a borrower selects a shorter repayment tenor, they will have to pay a lower interest rate but a higher EMI and vice versa. Moreover, with a LAP EMI Calculator, one can calculate the interest rates of their preferred tenor. This will help to estimate the approximate payable instalments on LAPs.
Applicant’s financial profile–
A lending institution will review the client’s profile to look for any discrepancies or risk of default. Therefore, such evaluations include information about the borrower’s age, residence type, occupation, employment status, monthly income, etc.
Consequently, individuals with a steady income coming from a reliable source will have far lower chance of defaulting than ones with an unstable income employment status. Therefore, the former will receive a lower interest rate on loans against property.
Similarly, lenders may charge a higher rate of interest for older people who are nearing their retirement than ones who are far from retirement age and has more years remaining in their service duration.
Income Tax Returns–
Another factor determining the interest rate of mortgage loans is the filing of income tax returns by the loan seeker. The income tax returns documents of a lender help to determine their source of income generation.
Moreover, consistency in filing income tax returns for the last 3-4 years indicates the reliability of the applicant. Therefore, it helps to secure a lower interest rate.
However, it depends on the lenders how low they can go with the interest rates. Nevertheless, the determining factors provide a rough idea of the key features that most lenders use to determine the interest rates on loans against property.
Moreover, various lenders offer pre-approved offers to their existing customers, which offers greatly speed up the loan application process. These offers are available on various products including home loan and loan against property. Borrowers can check their pre-approved offers by simply entering their name and contact details.
Knowing the determining factors for a mortgage loan interest rate can help loan seekers to reduce their repayment burden actively. This ensures that they can secure substantial credit for multiple purposes at an attractive interest rate on LAPs.
Conclusion
Understanding the factors that influence loans against property interest rates is crucial for borrowers. Several key elements can impact these rates, including the borrower’s creditworthiness, the loan-to-value ratio, prevailing market conditions, the property’s location, and the type of property being offered as collateral. Evaluating and addressing these factors can help borrowers secure favourable interest rates and repayment terms. It is essential to conduct thorough research, compare multiple lenders, and negotiate effectively to obtain the most advantageous loan against property interest rates. By considering these factors and making informed decisions, borrowers can navigate the lending landscape more effectively and optimize their borrowing experience.
