3 Factors Affecting Loan Interest Rates Against Property in India


Loans are of two types in India – collateral based and non-collateral based. While a secured loan requires you to pledge something, an unsecured loan does not require any collateral. However, secured loans offer much lower interest rates and more features than unsecured loans.

This article discusses the 3 main factors that lenders consider when determining the interest rate for a loan on a property. Read on to find out more.

Loan Against Property – An Introduction

A home loan or mortgage is a secured loan that offers unparalleled benefits and unparalleled convenience. Any residential or commercial owner in India can apply. The lender assesses the status of the property and the eligibility of the borrower before approving the loan.

After applying for a mortgage, the lender sends a loan officer to the borrower’s registered address to verify the condition, location and status of the property.
The condition and status of the property plays a major role in determining the loan amount, eligibility, and interest rate for a loan on the property.

3 Factors Affecting Loan Interest Rates Against Property in India

Here are the top 3 factors that play a decisive role in determining loans versus mortgage interest rates and eligibility:

Credit score

The borrower’s credit score is the most important factor that influences loan interest rates in relation to property. It also influences loan eligibility.

A high credit score (mostly above 750) indicates strong creditworthiness, which means the borrower takes loan repayments seriously. Conversely, a low credit score suggests poor financial discipline or a lack of credit profile.

If a borrower is creditworthy, lenders view their loan as less risky since the risk of default is minimal. This incentivizes them to offer these borrowers the best loan against home interest rates.

The loan versus property interest rate is directly associated with the credit rating. For example, you can expect an interest rate of 7.75% to 8.25% on a loan against commercial/residential property if your credit score is above 800.

However, if your credit score is below 170, the interest rate will increase between 10.15% and 10.65%.

If a borrower’s credit rating is low, lenders classify them as a high-risk borrower. This induces them to increase the interest rate to reduce their risk. Additionally, some lenders may reject a loan application if the borrower’s credit score is below a specific limit.

It is also wise to note that lenders usually offer a loan amount of up to 60% of the market value of the mortgaged property. They assess a property’s location, age, and surrounding infrastructure to determine the loan rate.

The borrower’s profile

The borrower’s profile is the second most important factor determining the loan versus mortgage interest rates. The borrower’s profile includes their age, residence, occupation, monthly income, income from other sources and, occasionally, the total amount of their savings.

Age is a crucial factor since a young person may have more years to repay the loan than someone close to the maximum loan application age. The maximum age for applying for a home loan is fifty-five (55).

Also, borrowers with a stable job or business may get lower interest rates than someone with an uncertain income. In addition, lenders usually specify minimum income for borrowers.

Therefore, you need to find out about these things before applying for a loan on the property.

The property to be pledged

As already mentioned, property plays a vital role in determining lending versus property interest rates. Since the loan against property is a secured loan, the market value and attractiveness of the property are closely linked to the approval of the loan.

For example, if a property is in a prime location, the lender can quickly liquidate it to recover its rights in the event the borrower becomes a defaulter. On the other hand, if the property in question is in a remote location, the lender cannot liquidate it as needed.

Typically, loan officers assess the type of property (residential or commercial), age, location and location benefits, market value and condition of the property. Residential properties are valued differently than commercial buildings, so interest rates may differ.

Increasing your loan against property eligibility is imperative when you want to get the best rates. However, before choosing a loan, make sure you go to the right lender, because the best lender offers many value-added benefits on top of a low-interest home loan.

Additionally, an old, dilapidated building can fetch higher rates than a new, well-maintained, high-priced home.

It is a good idea to analyze the real value of your property to negotiate the rates in your favor.

Conclusion

Increasing your loan against property eligibility is imperative when you want to get the best rates. However, before choosing a loan, make sure you go to the right lender, because the best lender offers many value-added benefits on top of a low-interest home loan.

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