5 Aspects that Determine Mortgage Loan Interest Rates
If you want to apply for a mortgage loan, then you may have an idea that the mortgage loan interest rate is affordable. Why? It is because it is secured loan as the collateral here is your property.
One of the popular mortgage loans is the loan against property. But have you ever wondered what determines mortgage loan interest rates? If not, then let’s find out in this short post!
1. LTV Ratio
Loan to Value (LTV) refers to the percentage of the value of the property that you can get while keeping the asset as the collateral. A large loan amount comes with a higher interest rate. It is as the credit risk of the lender is higher. But if you manage to put down a large down payment amount, then the loan quantum could be reduced. Hence, that may lead to reduced interest rates and smaller EMIs.
2. Your Cibil Score
The credit score does have an impact on mortgage loan interest rates. It is the mirror of your creditworthiness. It showcases if you have paid earlier and ongoing EMIs on time or not. If yes, then you will have a robust cibil score. Lenders may acknowledge this and award a lower property loan interest rate. You should try and maintain a credit score of 750 or more by paying your loan and credit card bills on time.
3. The Location of the Property
The location of the new home if you are availing a mortgage loan may hamper the rate of interest. A home located with better connectivity and infrastructure will have a greater resale value. Houses in a far flung location may come with a lower price tag but will have a lower resale value. Lenders consider new and better located properties carrying better resale value. And that’s why they charge lower mortgage loan interest rates on them. On the other hand, houses with a lower resale value will attract a higher rate of interest.
4. You Job Profile
If you have been well employed and have a consistent source of income, then lenders may consider you as a low-risk loan applicant. On the other hand, loan applicants who switch jobs more often and their incomes are not fixed are considered high-risk. Creditors offer lower mortgage loan interest rates to individuals with a stable income. Hence, if you want to enjoy a lower property loan interest rate, then you should avoid switching jobs often.
5. The Tenor of the Loan
You should be aware that loans with a smaller tenor always attract a lower interest rate even when you have to pay bigger EMIs. On the other hand, loans with a long tenor will have higher interest rates even when you pay smaller EMIs. Thus, while looking to select the loan tenor, you should aim to go for a not too long and not too small tenor.
A too small tenor will hamper your monthly outlays. In this case, you may find managing your expenses tough. And it may lead to defaults and affect your credit score.
A too long tenor will mean that you will pay smaller EMIs, but your interest payments will be higher. Hence, the cost of the loan with a longer tenor will be more. What’s more, the mortgage loan with a longer tenor will have the debt liability on your head for long.
Now that you are aware of the aspects that determine mortgage loan interest rates, you should opt for the best offers. You can do that by landing on a third-party website and choosing a loan offer that suits your requirements the best.