18 FEBRUARY, 2022

A loan against property is an easy means to arrange funds for your various needs. You can get approval within a few hours and repay the loan as per your comfort over a longer duration.  A crucial component of your total repayment amount is the loan against property interest rate. A lower interest rate would help you get an affordable EMI. However, a higher interest rate can significantly inflate your cost of borrowing. Therefore, it is suggested that you know the key deciding factors that affect the interest rates of loans against property.

 

Before availing a loan against property, you must know about the following factors that affect its interest rates. 

 

  • Credit score

Your credit score is an indicator of your creditworthiness. It is a reflection of your credibility and repayment capacity and so a crucial determinant of your interest rates. The credit score is measured on a scale of 300-900, where 300 is the lowest and 900 is the highest score. Typically, you must have a credit score of 700 and above. If you have a lower credit score, the lender can reject your application or charge you a higher interest rate. It is best to check your credit score before you apply for a loan against property. If your score is less, improve your score by repaying off your old debts, and paying EMI and credit card dues on time.

 

  • Profile

Your profile as a borrower is also a significant determinant of loan against property interest rates. Your age, profession, place of residence, monthly income, etc., are carefully scrutinized while processing your application. If you are young, you have more years to earn. In such a case, you could get lower interest rates. Similarly, if you are nearing retirement, the lender can charge you higher interest rates.

 

If you are self-employed, you could be charged a higher interest rate compared to a salaried person, as they are more likely to have a stable and fixed source of income.

 

  • The mortgaged property

The lenders closely evaluate the mortgaged property to determine your interest rates. The lenders assess the property’s location, age, location, value and physical condition. Often lenders charge different interest rates for commercial and residential properties. Also, the interest rates differ based on the location and age of the property. They can charge a lower interest rate for properties that are new and located in a prime location. It is typically easier to liquidate such properties if the need arises. On the other hand, for old properties, lenders usually charge higher interest rates.

 

Along with knowing the factors determining the interest rates, you must ensure that you fulfill the loan against property eligibility. You can always check the eligibility from the lender’s website. Moreover, when you apply for a secured loan, your property is at stake. Therefore, you must be able to afford the loan and repay it comfortably. Experts suggest using a loan against property calculator before applying, to know your EMI and plan your loan better.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.