Significant Factors Affecting Property Loan and Interest Rate

Property loans, also known as loans against property, are a type of loan against property under which a borrower pledges a residential or commercial property as collateral in return for loan money. Since mortgage loans involve collateral, lenders sanction these loans at low LAP interest rates, and therefore, property loans tend to be quite affordable. Lenders can choose to repay these loans over a long repayment tenor, which further enhances the affordability of loans against property. Further, based on end-usage, lenders can also avail of tax benefits on loans against property. 

Know about the property loan interest rates as it determine the affordability of a loan. Therefore, it is crucial to develop an understanding of the various factors that affect loans against property interest rates. 

Credit Score 

Your credit score is the key factor that affects the interest rates you will get on a loan against property. A credit score of 750 or above is the sign of a reliable borrower, someone who is highly creditworthy has a high repayment capacity and will pay their EMIs on time. If your credit score is 750 or above, you will most certainly be offered a good loan against a property deal. 

Job Stability and Income Profile 

Loans against property are a type of secured loan. However, just because these loans involve security, it does not mean the lenders do not check a borrower's income profile and job stability before sanctioning them a loan. Borrowers with stable jobs and income get offered lower loan against property interest rates. 

The Quality of the Property Mortgaged

The quality of the property mortgaged as collateral also determines the rate of interest you will be offered on your loan against the property. High-value properties located in central locations and having all amenities draw a lower rate of interest than properties located on the outskirts having low resale value. 

Loan Amount and Loan Tenor

Before applying for a loan against property, use a LAP EMI calculator to figure out the loan amount you are eligible for. Applying for a loan amount you are eligible for or something lower not only leads to quick approval but also a lender offering you low LAP interest rates. 

Similarly, the loan tenor also affects the loan against property interest rates. Long-tenor loans carry a higher risk for a borrower and therefore, lenders sanction these loans at a high rate of interest. On the other hand, short-tenor loans carry lower risk and therefore, lenders sanction these loans at a low-interest rate. 

Relationship with the Lender 

Lenders offer their best loan deals, including the lowest interest rates to borrowers who they have a relationship with as they know these borrowers' repayment capacity. Therefore, if you want to avail of a good loan against a property deal, work with a borrower you already know or first build a relationship with a borrower and then apply for a loan. 

External Factors 

Lastly, loans against property interest rates would also depend on external factors, such as repo rate, if you have availed of a loan on floating interest rates. Therefore, all borrowers on a floating interest rate regime must keep track of external market conditions.