From analysing your property to gauging your repayment capacity, the process of getting a loan against property is detailed to minimise the risk for both you and the lender. Of which, the most important would be the lender deciding your loan against property interest rate as it will directly affect the amount you repay. But how does the lender make a decision on this? Read on to find out.
- The market value of your property
Your loan interest rate will directly depend on the market value of the property. This is usually the current value the property has and not your purchase amount. If a property has a higher value, the bank can get its money back in case you default by selling the same. But at the same time, if the value of the property is less, the lender might not be able to cover its losses in case of a default. This reflects in the lender’s decisions related to the loan eligibility and interest rate. In short, the lower the risk related to the value of your property, the lower would be your interest rate.
- Credit score
Your credit score is another important metric when you apply for a loan against property. A good credit score reflects higher lender confidence. That means that you have paid your loans on time and your credit utilisation is good. For lenders, this means lower risk. Hence, a higher credit score could mean you will be offered a comparatively lower interest rate. The ideal credit score could vary for different lenders but generally, a credit score of above 750 is considered good, especially for a loan against property. So, make sure to pay all your debts and avoid taking multiple loans at once to better maintain a good credit score.
- Your income and its source
Your necessary loan against property documents include income proof as well. This is for the lender to know that you have a reliable source of income that is adequate to be able to repay the loans. This may include your bank statements or salary slips. An adequate income means lesser risk for the lender. This could help you get an attractive interest rate. You can use a loan against property calculator to easily figure out EMIs for your desired amount and tenure. Your job security also is an important metric. If you are employed in a reputed company, the lender will see less risk regarding job security.
- Your relationship with the lender
A long trustworthy relation with a lender is helpful for them to assess your financial habits and offer you a lower interest rate for your loan against property. So, consider the option to take a loan from your existing lender with whom you have had a long-standing relationship.
These important factors help the lender decide on an interest rate for your loan. Make sure you consider above pointers and do the needful to ensure a competitive interest rate before applying for a housing loan.