It is quite a common practice for individuals to fund big-ticket expenses, such as hosting a wedding or renovating a home, with an LAP loan or a mortgage loan.
Mortgage loans have for long served as a critical source of high-value financing for many individuals. Mortgage loans are long-term credits with repayment tenor extending up to 20 years or more.
Various financial institutions bring mortgage loan calculators which help borrowers to make such decisions efficiently. These calculators allow you to not only estimate the EMIs but also other essential values that can have an impact on your finances in the long run.
If you have little experience with these offerings, you may wonder, what is a mortgage loan? Simply put, it is a loan that requires you to pledge a self-owned property to a lender to access funds based on the value of the property.
This is important when borrowing a large sanction as the interest outgo can amount to a sizable sum. However, there are several factors that affect the rate offered to you. For a better understanding of these factors, take a look at the following pointers.
Credit Score
Your credit score plays an important role in determining your property loan interest rates. Since it is a proof of your financial discipline, lenders use it to assess your creditworthiness.
Generally, to avail such a benefit, you need to have a CIBIL score of at least 750 or higher.
750 credit score is considered an excellent score and will also allow you to negotiate with the lenders for more affordable rates.
On the other side if one have 650 and below credit score you will get offered a much higher interest rate.
Property Location
The interest rates offered by the lenders on mortgage loan does depend on the location of the property you pledge as collateral. In most cases, location plays a huge role in determining the market value of a property.
Additionally, property type is another factor to consider. Mortgage loan interest rate differs with commercial property and a residential property.
Loan Term
Loan term is simply the duration of the loan or tenor, and the loan against property calculator is the best tool to help you decide on the right tenor.
Mortgage loan tenor may affect the interest rate you get offered. If you opt for a short tenor, lenders will likely offer a higher interest rate. On the other hand, if you opt for a longer tenor, you may get a lower rate on the loan.
Loan-to-value Ratio
When opting for a mortgage loan, it is important to consider the loan-to-value ratio. While lenders may offer loans up to 80% of the property’s current value. Opting to borrow such an amount does affect the interest rate offered to you. This is mainly because the LTV ratio is directly proportional to the interest rate.
Interest Rate Type
LAP loan interest rate is categorised 2 main factors such as fixed and floating rates. As the names suggest, the fixed interest rates remain constant throughout the tenor, and the floating rate type shift based on the market. Fixed rate loan offers a higher interest rate.
Understanding these factors is crucial to borrowing effectively and optimally.
