Loans against property are loans backed by collateral or security, i.e. a residential or commercial property or a piece of land that the loan borrower owns.
People who avail of these loans essentially enter into an agreement with their lender that forbids them from selling their property until they have repaid the loan. The biggest benefit of a property loan is that loans against property interest rates tend to be on the lower side.
The current loan against property interest rates starts from 8.50% per annum. However, lenders decide the rate of interest to be extended on a mortgage loan based on the credit profile of the loan borrower and other things and if the credit profile of the loan applicant is not good, the property loan interest rate can go as high as 18%. In this article, we look at what loan against-property loan applicants can do to ensure they get approved for the lowest property loan interest rates.
Loan Against Property Interest Rates: How to Secure the Best Deal
1. Make Sure to Maintain a High CIBIL Score
Your CIBIL score is important whether you are applying for a secured loan or an unsecured one, such as a loan against property. Mortgage loans are backed by collateral but your lenders need to be convinced of your repayment capacity and creditworthiness.
A high CIBIL score does so. To secure a low loan against property interest rate, make sure to apply for a mortgage loan with a credit score above at least 750.
Building a clean repayment history, maintaining a low credit utilization ratio by paying the entire amount due on your credit card each month, keeping a healthy mix of all the different types of loans, preserving your credit history and not being too dependent on credit will allow you to build and maintain a high CIBIL score.
2. Pledging a High-Quality Collateral is Important
If you want to secure a low loan against property interest rate, you must pledge high-quality collateral. The quality of the collateral is important as high-quality collateral greatly offsets the risk for the lender.
Therefore, properties located in central locations or modern apartments or residential properties equipped with all modern amenities have higher resale value and help fetch lower loans against property interest rates than properties located on the outskirts or old homes in bad conditions.
3. Low LTV Ratio Loan
The LTV ratio that you opt for is also important. The LTV ratio refers to the ratio of the loan amount to the value of the property. A high LTV ratio implies a high loan amount and therefore, high chances of loan default. A low LTV ratio on the other hand indicates low risk for the lender and therefore, in the case of low LTV ratio loans, lenders show more willingness to negotiate the terms and conditions of the loan. Further, low LTV ratio loans are also easy to repay.
4. Repayment Tenor
The repayment tenor that one opts for also helps lenders decide the property loan interest rates to be offered. In general, long-tenor loans usually help loan borrowers secure a lower rate of interest as long-tenor loans have low EMIs and therefore, are easier to repay.
5. Income and Job Stability
Lastly, it is utmost important that you maintain income and job stability. People with a stable income rarely default on loan repayment. The same goes for people who have stable jobs. So, if a loan against property application is on the cards, you must maintain income and job stability. Further, you can even consider adding income from different sources to enhance your candidature and eligibility for a property loan.
Conclusion
Doing these simple things will give you higher negotiating power and allow you to secure a low-interest-rate loan against property.
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