India’s financial market witnesses a remarkable demand for secured credits like loan against property every financial year. The flexibility and convenience offered by these mortgage loans make them an ideal choice for individuals who are looking to avail funding in a lump sum.
LAP loan, or a loan against property, is sanctioned against an asset mortgage with the lender. Applicants can mortgage different types of real estate property, like a plot of land, their house, or commercial premises, for this particular advance. This mortgaged asset remains collateralised until the entire loan amount is repaid.
Several financial institutions offer these types of credits for borrowing convenience. As a prospective borrower, you must, however, know about the loan against property interest rate applicable to select a particular financial institution, wherein loan repayment remains affordable. So, below given is a comparative study of interest rate comparison and factors that affect it to help you make an informed decision.
Interest rate applicable for loans against property
Interest rate for a loan against property can start from as low as 10.10%. Usually, the rate differs between salaried and self-employed applicants; where salaried individuals can avail their credits at an interest rate of anything between 11.50% and 12.90%. For self-employed individuals, the interest rates on loan against property range between 13.30% and 14.50%.
Other than that, there are a few other fees and charges that an applicant has to pay when availing a LAP loan. These include –
- Processing fee
- Mortgage origination fee
- EMI bounce charges (if applicable)
- Penal interest (if applicable)
One might also have to bear a foreclosing fee if they decide to prepay their debt. This rate also varies between different lenders and can be as low as only 4% of the outstanding debt at the time of prepayment.
Read More: Tips to Efficiently Manage Housing Loan EMIs
Factors that can affect LAP loan interest rate
Further, several factors can affect the rate of interest applicable to a loan against property. Here’s a look for a better understanding.
- Credit score – Your credit score plays a crucial role in determining the rate of interest while you apply for a LAP loan. Low credit scores indicate a higher risk associated with lending, which is why lenders often charge high interest rates. Ideally, your credit score should be 750 or higher to avail the best interest rates. Credit score also affects loan against property eligibility as applicants with a healthy score are more likely to receive approval for an advance by different financial institutions.
- Eligibility and profile – An applicant’s age, source of income, residential address, etc. can also affect the loan against property interest rate. Generally, salaried individuals enjoy lower interest rates because of income stability. Individuals residing in Tier – 1 and Tier – 2 cities may also avail the loan at differing interest rates as decided by the lender. Fees and charges applicable on loan against property may also differ depending on these factors.
- Value of the mortgaged property – The estimated market value of the property to be mortgaged plays a key role in determining the loan amount and rate of interest while availing a loan against property. The loan principal as well as the interest rate applicable may differ depending on the type of property (i.e. residential or commercial), its condition, age, and location.
Lenders usually disburse 60% to 80% of a property’s estimated market value as a property loan. A high-value mortgage can increase the chances of approval of a lap loan at attractive rates, helping applicants improve their loan against property eligibility.
Further, while the repayment tenor of your loan does not affect its rate of interest, it impacts the total interest accrual. Loan against property is a long-term credit, where you can choose to repay via EMIs for up to 20 years. Shorter loan tenors thus result in lower interest accrual while an extended tenor results in high interest liability. You should thus select a repayment period according to your repayment capability, income, and personal obligations.
These are some of the most important factors that affect the rate of interest of a loan against property. You should carefully consider all these aspects before selecting a particular lender for the advance. Also, remember to look for additional features and benefits that financial institutions offer to their customers.
For example, reputed lenders provide pre-approved offers to existing customers, which simplify the application process and help save time. These offers are available on several financial products, including loans against property and home loans. You can check your pre-approved offer online by sharing only some essential details online.
LAP loans offer a substantial amount without any end-use restrictions, making them one of the most suitable advances to fund high-value financing requirements. Their high loan-to-value ratio and customer friendly repayment terms also make them one of the most sought-after sources of financing.