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Seven factors that influence your loan against property's interest rate


From keeping adequate money in our savings accounts to the smart use of our credit cards to investing in the correct funds or shares, we are constantly trying our best to make sure we are financially secure.

But, we can never underestimate an emergency as it has the potential to topple whatever precautions we set up for such instances.

Most people at such times seek a personal loan to meet the sudden expenditures. A good choice; however, if the requirement is big, there’s a better alternative available too. You can take out a mortgage or as it’s commonly known: Loan Against Property (LAP).

It is pretty simple. You take a loan from your bank against a property you own and pay back the loan amount, plus interest in the repayment period. If you are unable to do so, you have the option to sell your property to the bank and clear your dues. 


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Most banks offer you a mortgage but some offer add-on values too. For instance, IDFC FIRST Bank gives its customers two options to choose from. The first one is a traditional LAP while the second one allows you to park the amount in a current or savings account with the bank and use the funds as an overdraft facility.

However, when it comes to repayment, the factor most people worry about is the interest rate. Therefore, it is important to understand what affects the interest rate in or against your favour.

Here are four such factors that will help you weigh your options better:

Your credit score

Be it a housing, LAP, auto, or personal loan, this three-numbered credit score is at the core of all your loan applications. A high score indicates responsible financial behaviour and works in your favour via higher loan amount sanction and an advantageous interest rate.

Paying your bills on time, responsible use of credit cards, and ensuring you do not seek too many loans or credit cards at a time are some ways to keep your credit score high. A score equal to or higher than 750 is best recommended.

The older you are, the higher is the interest rate a lender will levy because younger applicants have a higher rate of 100 per cent repayment as compared to people in their old age.

The property you wish to mortgage

Banks offer you a LAP after inspecting the property in question. Depending on its type (residential, commercial, industrial, warehouse), location, date of construction, etc., the mortgage amount is decided. So, properties in good conditions and premium locations will fetch a lower rate of interest.

The loan tenure

The longer the loan’s repayment tenure, you stand to pay a lower rate of interest. Please note that, unlike personal loans, a LAP is a long-tenured loan so it makes sense to discuss or negotiate the interest rate with your lender first.

You, the seeker

It is your profile the bank will check before zeroing down on the LAP amount and the interest rate. Your job profile, income, and location hold sway. If you are living in a metro city with a salaried job, you are more likely to get a favourable loan amount and interest because the banks will consider you as a solid candidate who will not default on repayment.

The type of interest rate you choose

There is fixed interest rate and then there is floating rate of interest, which is based on a benchmark index and will change from time to time. Before you sign the dotted papers of your LAP, discuss the type of interest rate you wish to opt for with your lender.

Your income tax returns

When the lender asks for your income tax returns (ITR), it is to inspect your source of revenue generation. Consistent returns filing for the last three to four years will yield you a more favourable loan amount and interest. Please note, ITR is also asked when you apply for auto, home, personal loans, etc.

Your age

The older you are, the higher is the interest rate a lender will levy because younger applicants have a higher rate of 100 per cent repayment as compared to people in their old age.

LAP is a useful credit to access during emergencies and makes for a solid alternative to personal loans. It is also a better option to choose than indiscriminate use of a credit card.



The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.