7 Must-know Factors That Affect Your Mortgage Loan Rate of Interest

To remove the excess burden of EMI, applicants often look to lower the loan interest rate. One can effectively lower the rates if they are aware of the factors that can impact the mortgage loan interest rate.

Mortgage loan applicants typically pledge property as collateral to get funds and meet various monetary demands. The mortgage loan rates of interest are one of the most important aspects that one should consider when applying for a mortgage loan. Let’s find out the top factors that affect the rate of interest for a mortgage loan.

7 Things To Consider While Opting for a Mortgage Loan

Individuals who apply for mortgage loans need to consider specific pointers to avoid any hassles at the time of application.

• Credit Score

Borrowers must know that the credit score affects LAP eligibility. Credit/CIBIL score significantly determines the applicable interest rate during loan against property application.

For instance, an individual with a higher credit score portrays a lower credit risk, facilitating financial lenders to offer lower interest rates. On the other hand, an individual with a lower credit score means a high credit risk, and the lenders charge a higher interest rate to cover their risks. 

Therefore, while acquiring a mortgage loan, it is recommended to maintain a high credit score ranging from 750 or higher to secure affordable mortgage loan interest rates. 

• Profile of the borrower

While sanctioning the LAP, financial institutions mandatorily consider the borrowers ‘ profiles and evaluate the borrowers’ income and debt-to-income ratio. Therefore individuals with high income and lower debt-to-income ratios are preferred by lenders as they are considered to be efficient in managing the payment of their debt effectively. They will qualify to avail of loan against property at affordable interest rates. 

• Type of property mortgaged

The mortgage loan rates of interest vary for various commercial and residential properties. It is because properties possess different values due to their location and the age.

For instance, a property located in a remote neighbourhood might cost cheaper and would have lower value. Simultaneously property situated in a prime location with modern amenities and strong transportation would hold a significant resale value. Applicants holding such properties can convince their lenders for affordable interest rates.

• External factors

Various external factors like the RBI’s monetary policy, the economic growth rate as well as the inflation rate can also affect the interest rate. All these external aspects that will influence the loan against property interest rate are connected with one another.

In case the inflation goes up, the RBI will reconsider its monetary policy. The RBI will raise the Cash Reserve Ratio (CRR) as well as the repo rate. This will make the borrowing more expensive. It will help to keep all prices in check by restricting cash flow within the economy.

In simpler terms, if the economy suffers, the cost of getting a loan against property will rise. 

• Age

Age is quite crucial for determining the loan tenure, interest rate, and its approval. One can get a higher loan and even an extended repayment period in case the applicant is young. But, being young will not imply a low-interest rate every time.

Similarly, if one is about to retire, then the applicant might have to pay a high-interest rate.

If one is between 30 and 35 years, he/she is more likely to have a stable career. 

• Type of interest

While opting for a loan against property, borrowers can choose between mixed interest rate, floating rate, and fixed rate. Fixed-rate stays constant throughout the loan tenor and floating rates fluctuate depending on the market changes. Hence, borrowers must choose wisely as it affects their repayment planning and EMI amount.

• Loan tenor

The loan tenure for mortgage loans will vary across multiple lenders. A longer tenor implies smaller EMIs. 

Conversely, through a short tenor, one can save on the total interest outflow but will end up paying out a high EMI amount. In this regard, one can use a mortgage loan EMI calculator to check the EMI outflow and total interest payable and plan their finances better.

Hence, potential borrowers must have comprehensive knowledge about factors that can effect their mortgage loan interest rate to avail of loans at lower interest rates.

In addition, individuals must meet all the necessary eligibility criteria to qualify for a LAP and provide all the required documents. 

However many lenders extend pre-approved offers to make the loan application hassle-free. You can check your pre-approved offer by entering the necessary details like name and contact number. These offers are available on many financial products such as home loans and others.