A loan against property allows a borrower to take a loan from banks and other financial institutions while keeping a residential or commercial property as a security. This is a secured loan and thus getting approval is generally easy and quick. 

An individual with a good credit score, no late payments or default on past repayments can avail this loan easily. Customers meeting the eligibility criteria should submit all the valid loans against property documents required to meet the verification process. The approval will depend on the applicant’s age, income, credit score, existing debts, and the market value of property. 

What are Mortgage Loan Interest Rates?

The main advantage of a loan against property is an individual can enjoy his/her property as long as there is no default on repayment. There is no change of ownership and when borrowers repay the loan amount completely, lenders give back entire registration papers along with a No Objection Certificate (NOC). 

Mortgage loan interest rates determine how much a borrower will be charged for availing the loan. This is a percentage of the total amount borrowed and it needs to be repaid within the stipulated time. The interest rate depends on a number of factors such as the value of the property kept as collateral, repayment capability of the applicant, etc. 

Borrowers pay different interest rates for different mortgage products. Generally, the interest rate on loans against property or mortgage loans in India start from 9.75%. Many banks offer loans against property of up to Rs. 5 crore. It is to be noted that the interest rates may vary between different lenders. 

What are the different types of mortgage loan interest rates?

There are three different categories of mortgage loan interest rates:

• Fixed-rate mortgage: This is the most common type of loan which home buyers prefer. With this loan, the borrower needs to pay a fixed interest rate for the entire repayment tenure. This thereby implies that monthly repayment also remains the same regardless of what happens to the base rate. 
• Floating rate mortgage: With floating rate mortgages, interest rate offered to the borrowers fluctuates over time as it depends on the repo rate announced by the RBI. Each lender sets its standard floating rate, which changes on a quarterly or yearly basis, depending on the lender. 
• Discount mortgage rate: Discount mortgages are variable rate deals that charge the lender a standard floating interest rate minus a fixed margin. A high standard variable rate increases a borrower’s payment capacity while it gets reduced if the variable rate reduces. Discount mortgages are offered with a deal period as decided by the lender. 

How do mortgage interest rates work?

The loan against property interest rates depend on the amount of loan borrowed. A certain percentage of monthly payment goes towards repayment of the interest component of the loan and the other portion goes towards the repayment of the principal amount. 

Mortgage interest calculation is done based on the outstanding balance that is yet to be repaid. Hence, the interest amount paid by borrowers gradually decreases and a large portion of their monthly payment goes towards repayment of the principal amount. 

How to get the best mortgage loan interest rate?

Tenure of a loan matters the most while determining mortgage interest rates. In case of a longer loan repayment tenure, the interest rate will be higher. Thus, it is always advisable for borrowers to opt for short-term repayment. Here are some important factors that one can keep in mind to achieve ideal mortgage loan interest rates:

• Check your credit score and report

Both the credit score and report of the borrower play an important role when it comes to getting the best rates of interest on mortgages. A borrower with a low credit score has a high chance of making a default on their mortgage payments. Thus, lenders might charge a high rate of interest to cover up the borrower’s risk. 

A high credit score assures that the borrowers will pay their debts on time. Thus, the lenders also feel comfortable offering a better mortgage loan interest rate.

Borrowers should check their credit reports regularly to improve credit scores. They should not involve themselves in behaviors that might result in damaging their credit score.

• Make a large down payment

Borrowers should aim to make a down payment of more than 40% or more. This lowers the liability of the lenders, which is why they tend to offer better rates of interest. The larger will be the deposit, lower will be the loan-to-value ratio of the mortgage loan. The risk of the lender also reduces. This, in turn, reduces the mortgage loan interest rate. 

Many banks and financial institutions provide pre-approved offers on mortgage loans or loans against properties. Borrowers can check whether they are eligible for such offers by simply visiting the website of their preferred lender and entering some basic contact information once prompted. Ensuring eligibility before loan application assures faster loan approval. 

Mortgage loan interest rates vary from one lender to another. Before opting for a loan against property, lenders should use a loan against property EMI calculator to check how much they can borrow based on their repayment capability. One should always make sure to avoid payment defaults as this will increase the repayment obligations as well as have a negative impact on one’s credit score.