Property is not only an asset that appreciates over time, bringing good returns, but it is also an asset that can help you fulfil your goals. When in need of additional funds, for personal or business-related end-use, your property will come in handy and will fetch you extra funds without even having to sell it, thanks to the product called mortgage loan, which lets you borrow a certain amount against your property. You can use the funds availed of practically for any purpose (as long its use does not violate law of the land or pre-defined criteria of the creditors). You can also use the borrowed amount for expansion of business, supporting your child’s higher education abroad, or funding their marriage.
What Is Mortgage Loan?
A mortgage loan, also known as a loan against property (LAP), is a type of secured loan wherein one can borrow money from a creditor, bank, or a non-banking financial institution, by mortgaging the property as collateral. One can opt for a mortgage loan against a residential, commercial, or even against a piece of land. The documents of the mortgaged property remain with the lender until the loan is repaid through equated monthly instalments. The mortgage loan interest rate is lower than what you pay on unsecured personal loans. Further, these loans can be availed of for as long as up to 20 years. On the other hand, the tenor of a typical personal loan goes up to only five years. LAP loan interest rates tend to vary from lender to lender, and to avail of the best mortgage loan interest rates, here are few things one can do:
Check Your Eligibility
For a faster mortgage loan approval, it is better to self-evaluate your creditworthiness before opting for a loan. The lender will anyway assess your eligibility based on your income levels, age, past loan repayments, and CIBIL score, etc., but it is advisable to use the mortgage loan EMI calculator to help understand one’s EMI obligation in advance. A good credit score gives confidence to your creditor about your ability to repay your debt. In addition, a good credit score will help you get a better mortgage loan interest rate and higher credit limits.
A few vital tips: Always try to pay your existing EMIs and credit card dues on time without defaulting on them, and if possible, pay off any one or more of your existing loans to improve your CIBIL score.
Evaluate Your Property
Property being the core part of the mortgage loan process, it mustn’t be in any kind of legal dispute and must have no loans already running against it. All the documents related to the property should be readily available for verification. You can avail of a mortgage loan equivalent to up to 70% of the property value. The property loan interest rate depends on the type of property: residential or commercial. Location, age, and market value of the property are also among the important determinants of mortgage loan rates. A new property with high resale value will attract a low-interest rate as it reduces the risk to the lender in case of any default on repayment of the loan. On the other hand, an old property situated in the city outskirts may attract high mortgage loan interest rates.
Compare LAP Loan Interest Rates
Property loan interest rate is not uniform across lenders, so it is important to check the offers provided by various creditors before applying for any mortgage loan. The objective is to get the lowest interest rate possible. The interest component is the major portion of the total loan repayment amount. In the case of large amounts, even a decimal point of variation in the interest rate can make a big difference. But that is not the only aspect to be kept in mind, always read the fine print as well i.e. other charges, such as processing fees, prepayment fees, or penalties on late payments on the loan amount that will be levied by the lender. The lender’s credibility and customer service should also be taken into account when opting for a mortgage loan.
Fixed vs Floating Loan Against Property Interest Rates
Selecting the right type of mortgage loan interest rate can help you save a decent amount of money. The loan against property interest rates are of two types, namely:
- Fixed Interest Rate
Under this, the interest rate remains the same through the entire tenor of the loan. You should opt for a fixed rate when you know that the lending rates are going to increase.
- Floating Interest Rate
The interest rate is linked to the prevailing market rates. The interest rate can go higher as well as lower, changing your interest liability every time there is a change in the market rate. One should opt for a floating interest rate when the interest rates are touching their peaks to enjoy the benefit of any future decreases.
We hope the tips and suggestions mentioned in this article will help you get the best interest rate on your mortgage loan.