How Loan Against Property Interest Rate Is Decided Based On Your Profile

Loan against property has been projected to be grown annually by 14% in terms of value till FY 2026 (1). One of the major factors influencing the demand for this mortgage loan is its interest rate. Individuals get an attractive property interest rate against this credit facility as it is a relatively less risky financial product. 

Nevertheless, some aspects of lenders’ profiles, such as age, income, etc., significantly influence the interest rate of loan against property. By being aware of all factors, individuals can take necessary measures to reduce their borrowing rates.

Factors influencing loan against property interest rate

Here are some major factors regarding your loan profile that lenders evaluate to determine an interest rate:

• Credit score of the applicant

The credit score is one of the primary aspects of the applicant’s profile considered by the lending institutions while determining a loan against property interest rate. This score reflects the creditworthiness of the borrower.

In this regard, financial institutions ensure that their customers have a CIBIL score above or equal to 750. Such a credit score reflects that they have repaid their previous debt on time. As a result, borrowers can negotiate with the lender for competitive interest rate when borrowing the credit.

• Age of the applicant

Individuals can get a lower interest rate if they apply for a property loan at a younger age than towards their retirement. Applicants get sufficient time to repay their debts when they get loans at a younger age. As a result, they can avail the funds at market-best interest rates.

• Annual income

It becomes difficult for the borrowers to pay their dues on time with an unstable income. Therefore, lending institutions scrutinise the ITR, payrolls, etc., to ensure that the individuals have sufficient and stable income. It provides them with an assurance that their customers can repay without much difficulty. As a result, the risk factors of those lending institutions get reduced. Such individuals can negotiate for a lower loan against property interest rates.

• Individual’s employment status

Like income, employment status also is a determining factor of this property loan interest rate. Generally, salaried individuals get a more attractive interest rate than non-salaried or self-employed individuals. 

Furthermore, the government employees and professionals from MNCs or reputed organisation can enjoy a more favourable borrowing rate. In this regard, individuals also need to know the strategies following which they can get a more attractive interest on their loan against property.

Ways to get a reduced loan against property interest rate

Here are the factors that individuals must keep in mind while they apply for a loan against property to reduce their interest rates:

• Taking loans for a shorter tenor

Usually, the overall interest outgo is on the lower side when a borrower chooses shorter repayment tenor; however, the EMIs become higher. To avoid this situation, they can use the loan against property EMI calculator before applying for the credit. By simply putting the inputs like loan amount, borrowing rate and the probable tenor, they can understand whether the instalment is under their capacity or not.

• Make substantial down payment

In this property loan, the financial institutions come with a loan-to-value (LTV) ratio that indicates the maximum credit one can get by mortgaging property. For example, if the LTV ratio is 80%, individuals can get a loan of Rs.8 lakh against a property having a market price of the property being Rs.10 lakh.

In this regard, if borrowers make a substantial down payment when borrowing the loan, it significantly reduces the risk factor of the lender of regarding loan default. Therefore, by making a considerable down payment, one needs to borrow lesser loan amount and the applicable interest rate will not be higher.

• Condition of the property

Conditions and special amenities of a property can also influence the interest rate. Apart from this, property in a prime location with improved transportation has a higher demand. All these facilities increase the resale value of that asset. In case the borrower fails to repay and the loan becomes a non-performing asset, lenders can easily liquidate it and get back the remaining amount. As a result, lending institutions may agree to offer the loan at an attractive loan against property interest rate.

This way, individuals can secure a reasonable interest rate and substantially reduce their borrowing costs.

Advantages of loan against property

Here are the benefits of this mortgage loan offers:

• Easy eligibility criteria

Being a secured credit facility, financial institutions offer this loan at lenient eligibility criteria. They majorly focus on the valuation of the mortgaged property. This way, it assists them in meeting their financial requirements easily.

• Lump sum credit

Individuals can obtain a sizeable loan amount through loans against property. This can be one of the feasible options to raise funds for big-ticket expenses. 

• Tax benefits

Individuals can also obtain tax benefits on loans against property. Section 24 of the Income Tax Act entitles individuals to get a tax deduction on the paid interest amount of up to Rs.2 lakh if they utilise their borrowed capital for purchasing or constructing their homes.

Apart from all the aforementioned benefits, existing borrowers can also leverage the benefits of pre-approved offers. Major financial institutions extend this tailored loan offers on financial products, including loan against property and home loans. By obtaining these special benefits, borrowers can reduce the hassles of the loan application process. They only have to mention their credentials, such as names and contact details to check their pre-approved offers.

In conclusion, borrowers only need to ensure that they reduce lending institutions’ risk factors to negotiate for an attractive loan against a property interest rate. Individuals can significantly cut down their borrowing costs by securing such a rate. It also decreases the instalment amount, helping borrowers to repay effortlessly.