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).

With LAP loans, you borrow  funds from your bank against a property you own and pay back the loan amount, plus interest in the repayment period. The bank uses the property as security in cases of default. However, loans against property offer low interest rates compared to personal loans or other unsecured borrowings. 

Most banks offer you a mortgage but some offer add-on values too. For instance, IDFC FIRST Bank comes with a loan against property that offers 80% of the market value of your property. Whether it’s a residential, commercial, or industrial property, you can leverage your property to secure loans of up to ₹15 crores at competitive interest rates. If you have rental income, you can also opt for a lease rental discount for an affordable loan. The online application process makes it easier for you to obtain a loan against property without hassles.  

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 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. Additionally, the LAP interest rates also depend on repo rates set by the RBI (Reserve Bank of India) which may vary from time to time.

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.

Conclusion
 

A loan against property is a powerful credit tool when you need high-value financing during critical times. IDFC FIRST Bank’s LAP offering stands out with its high loan amount, competitive interest rates, flexible options, and transparent terms. By understanding factors that affect interest rates and planning wisely, you can make the most of your mortgage loan without compromising financial stability.