Many property owners make the terrible mistake of not unlocking the value locked in their property. Life is unpredictable and no matter how well you plan it, sometimes you find yourself in need of urgent funds.
During such a situation, most people avail themselves of a personal loan. Unfortunately, personal loans are never a smart choice for they attract a very high rate of interest, involve a short loan tenor, and invariably a small loan amount. Compared to a personal loan, mortgage loans are a far better deal.
Mortgage loan interest rates tend to be low; the loan tenor can stretch up to 20 years; borrowers can borrow up to 75% of their property’s value as a loan; and the loan funds come with zero end-use restrictions, thereby making it possible for loan borrowers to use the funds availed of take care of both personal and professional requirements.
This article discusses everything there is to know about home mortgage loans and their interest rates and is a must-read for anyone planning to avail themselves of a property loan or loan against property.
Mortgage Loan Interest Rates: Types and Factors that Affect
Lenders sanction mortgage loans at two different types of interest rates: fixed and floating.
Fixed-interest-rate loans are loans for which the rate of interest remains the same through the tenor of the loan. In this case, the mortgage loan interest rate is not affected by external market conditions, hence the name fixed-interest-rate property loans.
Fixed-interest-rate mortgage loans tend to be riskier for lenders and therefore, when loan borrowers opt for a mortgage loan on fixed interest rates, they are generally asked to pay a higher interest rate.
Floating-interest-rate mortgage loans are loans that are dependent on external market conditions. They are linked to an external benchmark and any changes in the external benchmark causes the loan interest rates to fluctuate.
For instance, if you have availed yourself of a Repo rate-linked mortgage loan, an increase in the Repo Rate will cause your mortgage loan interest rates to go up and a Repo Rate cut will lead to lower mortgage loan interest rates and therefore, lower loan EMIs.
Property loan borrowers must decide the type of interest rate they want very carefully and after weighing both the pros and cons. While fixed-interest-rate property loans tend to be more expensive than floating-interest-rate loans, budgeting for them is easy since loan EMIs remain constant. Floating interest rates, on the other hand, are cheaper and therefore, help save more and help borrowers enjoy better return on investment.
Mortgage Loans: Factors that Affect the Interest Rates
If you are planning to apply for a mortgage loan, you must understand the factors that affect the interest rate you get. Having this understanding will allow you to negotiate for low interest rates and repay your loan comfortably.
- The first factor that affects the rate of interest you get on your mortgage loan is the credit score you have. A high credit score in the range of 750 to 900 confirms your creditworthiness and repayment capacity and therefore, individuals with credit scores in this range are extended the best or the lowest interest rates.
- When it comes to mortgage loans, the quality of the collateral is of utmost importance. Properties located in posh locations and gated communities built by reputed builders or communities having all modern amenities have higher resale value than old properties or properties located on the outskirts.
High-value collaterals lower the risk for the lenders, thereby helping borrowers negotiate for a low-interest rate.
- People who have a stable income and job are less likely to default on loan EMIs. Therefore, when such individuals apply for a loan, lenders are more willing to negotiate on the loan terms and conditions.
- For mortgage loans or loans against property, the LTV ratio can go as high as 85%. However, high LTV ratio loans carry a higher risk of loan default and therefore, individuals who opt for high LTV ratio loans generally end up paying a higher mortgage loan interest rate. So, try and opt for a low LTV ratio mortgage loan.
- All mortgage loans are linked to an external benchmark. So, changes in the external benchmark will also affect the mortgage loan interest rates you get. Further, when the external benchmark rate goes up, floating-interest-rate mortgage loans become expensive and vice versa.
- Individuals who borrow money keeping in mind their loan against property eligibility have a better chance of getting approved for a mortgage loan quickly and availing of the loan on low mortgage loan interest rates.
Final Words
To conclude, to keep loan repayment easy and loan repayment journey stress-free, try and negotiate for the lowest mortgage loan interest rates. Availing yourself of the best or the lowest interest rate you can get is possible only if you maintain a high credit score, opt for a low LTV ratio loan, pledge high-quality collateral and borrow an amount you can comfortably repay without defaulting ever. Do also remember to use the property loan EMI calculator to work out the most perfect combination of loan amount and tenor for you.
Harry