5 Components that impact your mortgage loan interest rate


If you are a homeowner and looking to leverage your asset as collateral for a loan, then your priority should be to secure the best mortgage loan interest rate. Lenders examine several components before offering a favourable rate of interest, and you should be aware of these so that you can make the necessary tweaks. This is the mark of a smart borrower, and with such instruments, even a 1% difference can result in huge savings.

Generally, the loan against property interest rate offered to you is based on the property you pledge and your financial profile. To know all about these crucial components that impact your mortgage loan interest rate, read on.

Valuation of the property

The property that you pledge as collateral will be valued based on several factors, which are:

  • Location
  • Age of the property
  • Property condition
  • Current market rates

All of these factors together determine the final value of the property, against which lenders will decide on the best loan against property interest rates they can offer. For instance, if you own a property in an upmarket locality, your property valuation will be higher than those in other parts of the city such as the outskirts. A good rule to remember is that a lower resale value increases the risk incurred by the lenders, and so, they are likely to offer higher loan against property interest rates.

Employment status

Your employment status matters because it directly affects your ability to make timely payment. In similar vein, employment stability is another crucial aspect that lenders look for, which is why salaried applicants usually have an easier time accessing favourable interest rates. Alternatively, self-employed professionals must be able to prove stable and consistent income to avail a low mortgage loan interest rate.

Regardless of employment type, it also helps if you have other sources of income, such as a rental property. These income sources bolster your financial standing and increase the chances of getting the best terms on your loan against property.

Credit score

Your credit score allows the lender to accurately assess your creditworthiness. The score assigned to you is based on your credit history and this contains details about all your experiences with credit. If you have previously defaulted on payments, then your credit rating is likely to be low and lenders are less likely to offer low rates of interest on your loan against property. Ideally, you should apply with a score higher than 750, as this is considered an excellent score.

Loan-to-value ratio

When opting for a loan against property, remember that the LTV ratio is directly linked to the risk incurred by the lender. Naturally, borrowing a sum that amounts for 75% of the LTV increases the risk incurred and the lender is likely to offer a higher rate. Keep this in mind and borrow only as much as you need to ensure you get the best terms.

Interest type and loan tenor

A loan against property has three types of rates – floating, fixed and adjustable. Floating rates are variable and can fluctuate as per market conditions; whereas a fixed mortgage loan interest rate will have the same rate throughout the loan tenor. Finally, the adjustable interest rate is a combination of the two, with the first part of a tenor having a fixed rate, after which it changes to the floating rate variant.

Whichever one you opt for, it is prudent to note that a floating rate loan will have a lower interest rate at the beginning of the loan term, but it can go higher or lower depending on the market conditions. On the other hand, a fixed loan against property interest rate stays constant and is better for risk-averse borrowers.

Additionally, the repayment tenor also affects the loan against property interest rates. A shorter tenor means higher EMIs and greater risk of default, which is why lenders may charge a higher rate. On the other hand, a long tenor exerts less pressure on your finances and lenders may be willing to offer more favourable rates on the assurance of timely repayment.

Shopping for the best mortgage loan is now easy, considering you are aware of all pertinent factors that affect your loan against property interest rates. To truly avail the best terms, opt for a Bajaj Housing Finance Limited Loan Against Property. This loan is easy to avail, comes with attractive benefits and has features to help you fund your planned and unplanned expenses with ease. The flexible repayment tenor coupled with the competitive loan against property interest rates, makes it a cost-effective offering for your financing needs. You can avail a sizable sanction and even enjoy the benefit of quick processing, ideal for emergency requirements. To get started, simply apply online by filling a simple form with your basic information.

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