Loan against property is a secured loan easily available to all individuals, whether salaried or self-employed, by mortgaging their property in the name of the bank or financial institution. Borrowers can avail the loan against any individual, commercial, residential or industrial property that they own.
The purpose of the loan can be manifold as there is no restriction on the end use of the borrowed funds. So when you apply for property loan, you can utilise it for meeting any high-ticket expenditure – personal needs like marriage or higher education; business requirements such as acquiring assets or expansion plans; medical emergencies and so on.
Factors Affecting Property Loan Interest Rates
In case of a loan against property, the interest rates are affected by many factors as given below, with property type being the most crucial one:
1. Applicant Profile
Your repayment ability has a strong bearing on how much interest you may be offered. Younger salaried borrowers with stable jobs and longer career paths ahead are likely to avail lower interest rates on their loans. While those nearing retirement may receive higher interest rates because of their limited number of working years, which could affect their earning potential.
Self-employed individuals could be given higher interest rates in the absence of regular and consistent sources of income. Moreover, many lenders offer interest rate concessions of 0.05% to women LAP borrowers. If you apply for a property loan with a female co-applicant, you can easily secure lower interest rates.
2. LAP Loan Tenor
LAP repayment tenor determines the loan interest rates. Shorter the repayment tenor, higher will be the rate of interest. A longer loan tenor may fetch you a lower rate of interest, but the interest component adds up to the overall loan cost.
3. Credit/CIBIL Score
Credit scores influence not just your loan against property eligibility, but also the interest rate offered. Therefore, LAP applicants should possess good credit history with a CIBIL score of 700 or above to obtain lower interest rates. A good credit score tells lenders that you are a responsible borrower and can make timely loan repayments. But if you have a low credit score, lenders may consider you a high-risk borrower and tender stricter loan terms with higher rates of interest. In certain instances, such applicants may even be rejected.
4. Type of Mortgaged Property
The market value and type of property you wish to mortgage determines your property loan interest rate. Both commercial and residential properties have different valuation. A commercial property may fetch you a better deal as compared to a residential one.
Apart from that, the location of your property can secure lower interest rates. Lenders prefer houses constructed by reputed builders/developers in prime localities with good amenities, infrastructure and connectivity. They also check for proper property documentation to ensure the home holds clear ownership title and is not involved in legal disputes.
Lenders closely evaluate the condition and age of the property. So if your mortgaged house is old and in need of repairs, you are likely to incur a higher rate of interest as opposed to a newer house that is well-maintained.
Types of Interest Rates for a Property Loan
If you own a property and wish to avail of a loan against it, check the main aspects of a loan against property interest rate, which depend on the following types of interest rates:
Fixed or Floating Rate of Interest
While comparing the two types of interest rates, it is generally considered that fixed interest rates are higher than the floating rates as they remain stable/constant throughout the loan tenor. On the other hand, floating rates are subject to change and reset periodically as a result of fluctuations in the Prime Lending Rate (PLR) and Marginal Cost of Funds Based Lending Rate (MCLR) of banks and financial institutions.
This facility enables you to deposit excess money in the loan overdraft account whenever available, thus reducing the loan interest liability and shortening the LAP tenor. This is especially useful for businessmen and self-employed persons who may have varied income and excess cash in spurts. The rate of interest for an overdraft facility is generally higher as it offers flexibility to the borrower.
Tips for Availing Better Loan Against Property Interest Rates
There are a few important considerations when seeking better interest rates for a LAP. These include:
1. Applying to Multiple Lenders
If you apply for a property loan with multiple lenders, it can lower your CIBIL score. Every time you apply, it is recorded in your credit history and may go against you. A lower credit score translates into a higher rate of interest on your loan.
2. Higher Loan Amount
A higher loan principal that exceeds your eligibility may result in the rejection of your LAP application; and even if you do secure the loan, it could be at a higher rate of interest. But when you apply for a suitable loan amount in line with the eligibility criteria, you can expect lower LAP interest rates.
3. Offers on Loan Principal
Lenders offer different kinds of discounts. In some cases, the rate of interest may be lower for higher loan amounts and vice versa due to the various price slabs of the lender.
4. Tenor-Based Discounts
You could be offered specific discounts if you choose to avail of a property loan for a certain tenor depending on lender policies.
5. Steer Clear of Marketing Gimmicks
At times, the actual rate of interest turns out to be much higher than the initially quoted rate. This may include some hidden charges too. Hence, always consult authorised representatives and insist on written communication regarding every aspect of your loan to avoid discrepancies and confusion.
A loan against property proves beneficial since the applicant can maximize loan eligibility for a much higher principal amount. Borrowers can also avail of a high-value top-up against their property loan to take care of any sudden financial requirement. However, before you apply for a loan against property, understand the payable EMIs and suitable tenor to determine loan viability with the help of a loan against property EMI calculator.