Four Factors that Affect the Interest Rate on Loan Against Property

A Loan Against Property is one of the best financial products on the market for dealing with various monetary crises. However, if you are unable to secure a low-interest loan, you will find it difficult to manage your EMI. Here we guide you on the top four factors affecting mortgage loan rates.

1. Age of the applicant

Age is a significant factor in loan against property approval. It is perhaps the most vital factor in determining the interest rate on loans against property, not just loan approval. You are probably wondering why the lender is still interested in knowing my age if you are putting up valuable real estate as collateral. The answer is that your age reflects your earning capacity.

Let’s take an example of this.

Assume A and B visit a financial institution to apply for a mortgage loan. Mr. A is 38 years old, while Mr. B is 70 years old. In this case, who, in your opinion, will be offered an expensive interest rate on a loan against property? If you are still not sure, the answer is Mr. B. It’s because Mr. B has reached retirement age and must now rely on a pension or a small business to meet his needs. Mr. B’s low earning potential qualifies him for an expensive loan.

2. Property type

Many applicants believe that whether they use commercial or residential real estate as collateral, the lender will offer the same interest rate on a loan against the property. However, this is not the case. Commercial properties are typically more expensive than residential properties. The most common reason for this is that commercial buildings are typically located near a market. Such assets appreciate at a slightly faster rate than residential property. Furthermore, if the applicant loses their primary source of income, earning passive income through rent is always an option.

Furthermore, in the event of a default, the lender will easily find a buyer for the commercial asset at an auction and will be able to recoup the unpaid dues.

In light of all of this, commercial assets are usually preferred over residential ones.

3. Property condition

Do you really think you can secure an inexpensive mortgage loan on a property? Whose condition is such that you never know when it will collapse? If you believe this, simply use the loan against the property calculator to compare. The rates on your and your friend’s mortgage loans; the difference will be obvious.

Before sanctioning a loan, financial institutions send a surveying officer to inspect the property site. They assess the property’s health as well as its proximity to important amenities. Such as a hospital, school, gas station, grocery store, and so on. These factors are taken into account because in the event of a default. The location and condition of the property play a significant role in locating a buyer quickly.

4. Repayment tenure

After the home loan, the mortgage loan is one of the loans with the longest repayment term. But there is a catch. If you choose a longer repayment period, be prepared to pay a high-interest rate.

In fact, regardless of the type of loan you choose, extending your repayment period will result in higher interest payments. Many borrowers opt for a 15-year term in order to reduce their EMI. When you compare the total payable using the loan against the property calculator for 5 years, 10 years. And 15 years, you will notice that the interest payable for 15 years is three times the actual borrowed amount.

To conclude

Knowing the factors impacting the interest rate on loans against the property will make it. Easier for you to choose the ideal lender and decide on the optimum loan amount.