loan against property interest rate

Loan Against Property

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Loan Against Property Interest Rate

Loan against property also known as mortgage loan is a secured loan taken for taking care of financial obligations. The individual can keep his residential or commercial property as collateral and get a loan. The loan amount varies as per the market value of the property. Once the person can arrange the loan against property documents required, he can check his loan against property eligibility and accordingly apply for the loan.

Before applying, a person must understand the loan against property interest rate which is being provided. Then compare the options and accordingly decide the best offer. Many Banks and NBFCs in India offer exciting mortgage loan interest rates. There are two types of interest rates: Fixed Interest Rate & Floating Interest Rate.

Fixed Interest Rate:

In a fixed interest rate, there will be no changes in the loan against property interest rate throughout the tenure. This means that the mortgage loan interest rates are not affected by any fluctuation in the market rates. This is beneficial for those who fear that mortgage loan interest rates might increase in the future.

Advantages of Fixed Interest Rate for Loan Against Property:

  • 1. Fixed rate in fluctuating market conditions:
  • In a market where the mortgage loan interest rates are increasing, the borrower doesn’t have to worry about the constant changes in the market. Even if the loan against property interest rate will keep increasing, the borrower will continue paying the same fixed EMI. By doing so, the borrower ends up saving a lot of interest amount.
  • 2. A safety net for borrowers with a strict budget:
  • By taking the fixed rate of interest option, a borrower who has calculated his exact needs with the loan amount can be worry free as any change in the interest rate will not affect his EMI. Since he chose the fixed loan against property interest rate option, he will pay a fixed EMI only.

Disadvantages if Fixed Interest Rate for Loan Against Property:

  • 1. Higher interest rate amount:
  • When a borrower opts for a fixed loan against property interest rate, they end up paying nearly 1-2.5% more than the ongoing interest rate. This includes extra charges in the loan application and ends up with the borrower paying more. This rate is decided as per the norms and policy derived by the Banks and NBFCs.
  • 2. Zero benefits of decreasing interest rate:
  • The main disadvantage of having a fixed interest rate is that you cannot take advantage of the falling interest rates. When the market fluctuates and there is a decrease in the mortgage loan interest rates, the borrower will still continue to pay at the rate which was fixed earlier. Even though the current rate is low, they cannot take advantage of it.

Floating Interest Rate for Loan Against Property:

In a floating interest rate, there will be continuous changes in the loan against property interest rate throughout the loan tenure. This means that the mortgage loan interest rates are always affected by any fluctuation in the market rates. This is beneficial for those who are confident that mortgage loan interest rates might decrease in the future. In general, the floating interest rates are linked to the MCLR i.e. Marginal Cost of Lending Rate. This MCLR is decided by the RBI’S quarterly base rate announcements.

Advantages of Floating Interest Rate for Loan Against Property:

  • 1. Benefits of decreasing interest rate:
  • When the interest rate in the market falls, the businessmen enjoy a decrease in the EMI amount. The businessmen can enjoy this benefit of decreasing market rate. Many times financial leaders predict increase and decreases in the future interest rate. So if the prediction is of decrease then the businessmen should definitely opt for this type. The variety of interest rate helps the businessmen to pay less.
  • 2. Cheaper than fixed interest rate:
  • Floating interest rates are cheaper compared to fixed interest rates as they change from time to time. As mentioned above, fixed interest rates are 1% to 2.5% higher in value of floating interest rate. So the businessmen surely get benefits of that difference.
  • 3. Saves funds:
  • If the market rate goes up, it surely decreases after a specific period and gives the businessmen a chance to recover the loss in higher interest rate. So it basically helps the borrower to save more by helping to pay less.

Disadvantages of Floating Interest Rate for Loan Against Property:

  • 1. Unpredictable EMIs:
  • Whenever the market will witness a fluctuation in the interest rate on the higher side, the borrower will end up paying a higher EMI. This can mean that the borrower might have to pay more than double of the EMI in some months. So there is a high possibility of the borrower paying and losing more interest amount throughout the loan tenure.
  • 2. Not suitable for fixed income borrower:
  • As mentioned above, the nature of EMI amounts remains unpredictable in floating interest rate. Hence for a borrower who is on a fixed income and has a budget this type of interest rate doesn’t sound good. If the mortgage loan interest rates increase, then it will definitely impact the borrower’s budget and they will find it tough to repay the EMI.

Credit Score

To get a loan against property, the borrower would need a strong credit score. This credit score is very important in the mortgage loan process. While checking the loan against property eligibility, the banks will always check the credit score to evaluate the credit worthiness of the borrower. If you’re score is above 750, it is considered as a good score. But this depends from bank to bank.

Mortgage Loan amount:

The loan against property amount depends on the property market value. The bank can provide anything between 40-65%* of the property as mortgage loan value.

Following is a list of business loan interest rates offered by various banks and NBFCs in India as of August 2018:

Bank/NBFC Name Interest Rate* Bank/NBFC Name Interest Rate*
HDFC Bank Ltd. 9.75% onwards ICICI Bank Ltd. 13.35% onwards
Kotak Mahindra Bank 9.55% onwards Edelweiss Retail Finance Limited18.25% onwards 12% onwards
IndusInd Bank Ltd. 9.50% to onwards Axis Bank Ltd.14.25% onwards 11.00% onwards
Bajaj Finance Ltd. 9.5% onwards Capital First Ltd. 12% onwards
DHFL 12% onwards Yes Bank 10% onwards
Tata Capital Financial Services Ltd. 11.75% onwards HDB Financial Services Ltd. 11% onwards
Equitas Small Bank 10.00% onwards IDFC Bank Ltd. 10.00% onwards
Fullerton India Credit Co. Ltd. 13.00% onwards

*The above mentioned statistics are as of December 2017. These can change as per the bank/NBFCs policy terms and the loan borrower's profile.

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