One of the most secure ways of obtaining a loan is a loan against property (LAP). It provides quicker funding for a number of expenses, including business expenses and medical emergencies. This form of credit allows borrowers to place their property as collateral and still retain its ownership while repaying the sum.
Factors That Lower Mortgage Loan Interest Rates
Lenders decide the rate of interest and other loan terms based on certain parameters. Mentioned below are the factors that are crucial in availing low mortgage loan interest rates:
1. CIBIL/Credit Score
CIBIL score, also known as credit score, contributes greatly in determining the eligibility for a loan against property, as well as, its interest rate. A good credit score helps lenders establish creditworthiness of the borrower and assures them of his/her loan repayment capabilities. A score of 750 and above is recommended for securing a loan.
An applicant with a good credit score can easily get better loan terms at lower rates of interest. However, an applicant with a low credit score is considered high-risk with unfavourable credit history. Due to this reason, lenders could, in all likelihood, charge a higher interest rate. Some may even turn down the loan application.
2. Property Value
The loan against property interest rate is primarily influenced by the property to be mortgaged. Before applying for a mortgage loan, get an assessment done to determine the exact market value of the property, as this will decide your principal amount.
Once you apply for a loan, lenders will meticulously evaluate every aspect of the property before approving your loan. Its valuation is done based on the following parameters:
Type of property: The loan interest rate differs for commercial and residential properties. A self-occupied residential house will fetch a lower interest rate compared to a commercial property.
Age and maintenance: Old worn-out buildings will be charged a higher interest rate whereas, new buildings in excellent condition can avail lower interest rates.
Location and surroundings: If your house is centrally located with good amenities, it is likely to have a higher market value. So, you can expect a lower rate of interest for it in comparison to a house in the suburbs.
3. Applicant’s Profile
The complete profile of the applicant includes details like age, occupation, residence and income among others. These factors help lenders assess financial stability and loan repayment capabilities of the prospective borrower.
If an applicant is nearing retirement, s/he could be offered a higher rate of interest with high payable EMI and short repayment tenor. While a younger employee, with a long career ahead, can expect better loan terms with lower mortgage loan interest rate, reduced EMI and a flexible tenor.
Usually, lenders extend low interest rates to salaried individuals, since they have a fixed source of income. Whereas, self-employed applicants can be charged a higher interest rate as their income may not be regular or stable.
4. Loan Tenor
A loan against property is a long-term credit facility with a flexible tenor. A longer repayment tenor can fetch you a lower interest rate, which brings down your EMI. But it could also add to the overall loan cost. Conversely, a shorter tenor could increase the interest rate and, subsequently, the payable instalments.
Benefits Of a Loan Against Property
A loan against property is a popular option due to the significant benefits it offers borrowers. Here are some of the merits of a LAP:
1. Income Tax Deductions
If a borrower has secured a property loan for building a new house, s/he can avail of tax reductions under the following sections of the Income Tax Act:
- Section 24 – You can avail tax rebates up to Rs 2 lakh on the loan interest amount
- Section 31 – One can get additional tax benefits on the loan against property interest rate
2. Easy Approval
As loan against property involves collateral security, minimum documentation is required. Therefore, it becomes easier for lenders to process loan applications quickly.
3. Flexible Amount
The loan amount that a borrower receives against a property loan depends on the market value of the property. Hence, LAP offers a high loan amount to borrowers, which could go up to a few crores.
4. Competitive Interest Rates and Low EMI
A loan against property is a secured loan. So, the interest rate is lower than other loan options, which results in lower monthly instalments.
5. Easy Eligibility Criteria
The eligibility requirements for a property loan are easy to meet. These include basic parameters like age, income and financial stability. The LAP eligibility criteria, along with the interest rate, varies depending on the lender.
6. Flexible Repayment
Property loans can be availed for a longer duration. A longer tenor offers the benefit of comfortable loan repayments, thereby, reducing the financial pressure on the borrower.
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Summing Up
With easy eligibility criteria and high loan amounts, a loan against property is a good low interest loan option. Every bank and financial institution has its own set of loan offerings and specific eligibility criteria. Compare the various loan deals before settling for the one that suits your requirements.
