Loans against property or mortgage loans are loans availed of by pledging a property one owns as security. Property owners can avail of these loans against both residential and commercial properties as well as land.
Low mortgage loan interest rates in India, high loan sanctions, long and flexible repayment tenor, mortgage loan tax benefits and no end-use restrictions are some of the most crucial factors that work in the favour of mortgage loans. If you are planning to avail yourself of a loan against property, here are some very simple things that will help you score a low loan against property interest rates.
Loans Against Property: Simple Tips to Secure Low Mortgage Loan Interest Rates
Secure a Low LTV Ratio Loan: The LTV ratio refers to the percentage of the pledged collateral’s resale value that can be sanctioned as a loan. A high LTV ratio loan is a loan in which a borrower avails of a high loan amount compared to the value of the pledged collateral. For loans against property, the LTV ratio can go up to 75% in the case of low-value properties.
However, for high-value properties, the LTV ratio usually goes up to no more than 60% of the pledged property’s value. When loan applicants apply for a high-value loan, the chances of loan default increase due to high loan value and consequently, high home loan EMIs.
Therefore, high LTV ratio loans are perceived as riskier deals by lenders and lenders charge a high rate of interest on these loans. To secure low mortgage loan interest rates in India, you must opt for a low LTV ratio mortgage loan.
Maintain a High CIBIL Score: The CIBIL score is the
a key indicator that helps lenders ascertain the risk for them in doing business with the lender. A high CIBIL score indicates excellent creditworthiness and repayment capacity. It shows low risk for the lenders in doing business with the loan applicant and therefore, people with high CIBIL scores can secure loans on the best possible loan terms and conditions.
The ideal CIBIL score for loans against property in India is 750 or above. You will be able to avail yourself of a loan against property easily if your CIBIL score is 700. However, if you wish to have high negotiating power and want to be able to negotiate on the loan terms and conditions, maintain a CIBIL score in the range of 750 or above.
Pledge a High-Quality Collateral: The quality of the collateral is very important for loans against property. For loans against property or mortgage loans, the loan is secured by the collateral. In other words, in the case of a loan default, the lender can sell the pledged collateral to recover the money lost.
This rarely happens but the property offsets the risk for the lender. So, the quality of the collateral matters a lot. High-resale value collaterals reduce the risk for the lenders and therefore, lenders charge a low mortgage loan interest rate when borrowers pledge high-quality collateral. High-quality collaterals are high-value properties, such as centrally-located properties or villas in modern-gated communities.
Maintain a Low FOIR: FOIR or fixed-obligation-to-income ratio is the ratio of one’s income that is going towards loan repayment or payment of debt. A high FOIR indicates that a major percentage of one’s total income is already going towards repayment of debt and consequently, the person isn’t left with a very high income amount that they can dedicate to covering new EMIs.
Therefore, people with high FOIR often find it difficult to get approved for loans against property. If you want to avail yourself of low mortgage loan interest rates, maintain your debt-to-income ratio under 40%.
Opt for a Long Tenor Loan: When borrowers opt for a long tenor loan, the EMIs automatically become affordable or economical and consequently, the chances of a loan default decrease too. Therefore, lenders generally sanction loans against property on more favourable loan terms and conditions.
Final Words
Other than the things mentioned above, maintaining a stable income and job, applying for loans against property during the festive season and comparing lenders and loan offers will also work in your favour.
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