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How to Get the Best Mortgage Loan Interest Rates?

mortgage loan

A mortgage loan is a secured loan that can be availed of by an individual willing to pledge a self-owned property. There is no restriction on the end-use of a mortgage loan: the funds availed of can be used for anything personal, sponsoring a child’s education, financing his and/or her marriage, paying for unforeseen medical and health emergencies, or even fulfilling business requirements (expansion or debt clearance). Up to 70% of a property value is sanctioned as a mortgage loan for a tenor of 15-20 years, depending on the lender. Depending on your and your property profile, some lenders might give up to 80% of the property value. Mortgage loan interest rates may vary among lenders and depend on an applicant’s credit history, value, or type of mortgaged asset and income

Mortgage Loan Interest Rates

The Mortgage loan rates are generally lower compared to the interest rate applied on a personal loan. In a mortgage loan, you pledge your estate by submitting all the ownership-related documents in the custody of the lender. In the event of default by the borrower, the lender being the custodian of your property documents after all the required formalities will be able to liquidate the collateral to recoup the outstanding amount. This implies reduced exposure to the loan provider, hence, it can offer attractive mortgage loan interest rates. Since the interest amount is the major portion of the loan repayment amount, it is advisable to compare interest rates before applying for a loan.

How to Calculate Mortgage Loan Interest Rates?

Comparing mortgage loan interest rates will not only help save on interest costs but will also facilitate the evaluation of future expenses and plan repayments. With the help of a mortgage loan calculator, one can get details of the EMI installments that need to be paid and narrow down on the exact affordable loan amount.

The mortgage loan calculator is available online on the lender’s webpage. One needs to enter details of the principal loan amount, tenor, and the interest rate offered by the creditor. By punching in these details, the calculator automatically provides the exact EMI that will be payable on loan through the tenor. The calculator also displays the break-up of interest cost and total amount, including interest, that would be repaid by the borrower through the loan cycle.

Benefits of Mortgage Loan Other Than Low-Interest Rates

The benefits of mortgage loans are not just confined to low-interest rates. Other benefits include:

  1. Longer tenor: which offers the borrower a breather to repay the loan amount without feeling the burden of the EMIs.
  2. Even after mortgaging the property the borrower remains the legal owner of the property and can continue to reside/ rent the property.
  3. With easy documentation and fast loan approval, the mortgage loan becomes a better choice for business expansion decisions.

Factors Affecting Interest Rate

Various factors affect the property loan interest rate. Some of these factors are:

Credit Score of an Individual

A good CIBIL score is one of the key factors considered by the lender while offering an attractive interest rate. The credit score reflects ongoing loans and credit card dues along with repayment history, which helps the creditor gauge loan repaying capacity of the borrower.  A good CIBIL score (of 750 and above) gives the loan seeker leverage to negotiate lower interest rates.

Loan to Value ratio

The loan to value (LTV) is a financial metric used by lenders to assess the risk that they face before sanctioning a loan. As the term suggests, it is the ratio of the loan amount to the market value of the asset or property. Lower the LTV, the better offers a creditor provides to the pledger.

Value of the Property

The age of a property and its location are also important determinants of the property loan interest rate. If a property is new and located in an upmarket area of the city, then the lender may be able to offer a lower interest rate, since the risk to the lender will be less due to the high market value and potential ease of liquidation of the property.

Types of Mortgage Loan Interest Rate

The mortgage loan interest rate can be availed on fixed interest rate i.e. the interest rate remains the same throughout the tenor. Another option is to go for a floating interest rate. Under this, the interest rate on loans will be linked to market or benchmark interest rates and may increase or decrease through the tenor affecting EMIs.

The Tenor of the Mortgage Loan

Long tenors offered on a mortgage loan can affect the interest rate on the loan. A mortgage loan on shorter tenors for a high loan amount may attract a higher interest rate due to the high risk to the creditor.