Various Factors That Decide Your Property Loan Interest Rate

Posted 2022-11-18 14:06:38

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A loan against property is one of the popular credit options that enable borrowers to fetch substantial loan amounts by pledging their tangible properties as collateral, thereby optimizing their properties. However, before deciding on a loan option, borrowers must prioritize seeking the best loan against a property interest rate. Opting for a competitive interest rate will reduce the cost of borrowing and make the EMIs affordable.

Lenders assess several factors before levying an interest rate, about which borrowers must have a well-rounded idea as a minute change in the interest rate can result in considerable savings.

Know various factors which decide property loan interest rates

Before availing of a property loan, borrowers must consider the following factors that impact the interest rates:

Applicant’s profile

Applicants’ profiles, including their age, income status, place of residence, work type, etc., have a bearing on the loan against property interest rate. Borrowers nearing retirement age have questionable repayment potential; hence, they are charged higher interest rates than younger applicants.

Similarly, a person who does not have a stable source of earnings will be charged a higher interest rate than those with a steady income. This is why salaried applicants are offered lower interest rates than self-employed applicants.

Property to be mortgaged

The property in question plays a major role in determining the interest lenders will levy on borrowers. Lenders will scrutinize the property's age, location and condition before deciding on the lending rate. As commercial and residential properties have different resale values, they attract different interest rates. Even on a commercial property loan, borrowers are charged a higher interest rate.

Moreover, properties in prime locations and pristine condition will secure lower interest rates owing to their high market value than an old-worn-out property located in a less-desired neighborhood.

CIBIL Score- A game changer

A credit score indicates borrowers' financial behavior and credibility to the lender. Thus plays a significant role in deciding the interest rate. A healthy credit score of 750 and above works in favor of borrowers, helping them secure an advantageous lending rate. On the other hand, borrowers with a lower credit score are considered high, preventing them from receiving better interest rates. Hence, borrowers must strive to maintain a healthy score.

Rate Of Interest & Types

Lenders generally offer two types of interest rates- fixed and floating on the loan amount. As the name suggests, a fixed interest rate remains the same throughout the repayment tenor, whereas a floating interest rate fluctuates as per the market condition. Borrowers who want certainty can go for a fixed interest rate. On the other hand, borrowers who want to reap a base rate cut or repo rate reduction can go for a floating interest rate.