Loan against property is one of the most common types of mortgage loans available in the Indian financial market. These credits are sanctioned against an asset mortgaged with the lender, which can be a residential or commercial property, as well as a plot of land. The principal sum of the loan is determined based on the market value of that asset and can go up to as much as 80% of the price of a property to be mortgaged.
Individuals can enjoy competitive loan against property interest rates offered by several financial institutions. Lenders offer up to Rs.3.5 crore as an advance to eligible individuals applying for a loan against property.
Interest Rates Applicable For A Loan Against Property
Loan against property interest rate depends on various factors, including one’s income, property location, type of property to be mortgaged, credit history, etc. Eligible applicants can avail of competitive interest rates if they fulfill all the requirements set by their preferred lender.
Here are some of the factors that can affect the rate of interest of a loan against property.
Property Value –
The value of the mortgaged property is probably one of the most critical determinants of a LAP loan principal amount and interest rate. Lenders consider several factors, including the type of property (i.e. whether it is an empty plot or a built-up area, containing residential or commercial infrastructure), the condition of the infrastructure, age of the property, and even its location to determine the approximate value of the same. Usually, assets in Tier -1 and Tier – 2 cities are likely to result in higher property value because of their high market prices. These all can affect the rate of interest and are essential factors every applicant should know before applying for a loan against property.
Borrower’s Credit History –
Financial institutions also consider every borrower’s credit history and profile before determining the applicable rate of interest and principal sum. Most lenders prefer applicants with a high credit score, i.e. 750 or above. It shows that they are responsible borrowers, capable of repaying their debts within a predetermined repayment tenor.
The risk associated with lending can significantly affect loan against property interest rate, which is why applicants carrying a high credit score and clean credit history often enjoy lower rates. Contrarily, individuals with a poor credit score not only pay higher interest rates but also risk application rejection because they could not meet the necessary financial criteria set up by their financial institution.
One’s monthly income, repayment capability, source of earning, etc. can also affect the rate of interest as well as various fees applicable on loan against property. For example, salaried individuals often enjoy a lower rate of interest, as they carry a steady source of income when compared to self-employed individuals. Similarly, an applicant’s current obligations are also considered while reviewing their application, as this dictates their repayment capability as well.
Loan Repayment Tenure –
One’s preferred repayment term can also affect interest payment as per an applicable loan against a property interest rate. Usually, extended loan tenors result in high-interest charges, and vice versa. A long tenor, nevertheless, helps keep the EMIs in check, which can prove helpful for individuals with affordable repayment.
However, despite resulting in lower EMIs, longer repayment tenors increase the overall cost of the loan, as borrowers pay a larger sum as interest over multiple installments. Ideally, one should select a short loan tenor if he/she can manage such repayment requirements. Even though it may attract higher EMIs, the total sum repaid will be considerably lower than what one might have paid if a tenor of 20 years was selected.
Borrowers should also consider part-prepayment and foreclosure options while repaying their debts. While foreclosures allow them to pay off their total loan outstanding before the term’s end, part-prepayment can help reduce the payable EMIs of a LAP loan, helping to save a considerable sum over the repayment period.
Several lenders offer competitive interest rates against a loan against property. Individual reputed financial institutions even provide features like pre-approved offers to make the application process simple and convenient. Such offers are available on loans against property, home loans, and several other financial products. Proceed to check your pre-approved offer only with your name and phone number.
Understanding what a loan against property as well as its various terms and conditions is is essential while applying for credit. The above-mentioned details can thus help assist a prospective borrower make an informed decision while choosing a lender for the loan.