Loans against properties accounted for as much as Rs. 85,000 Crore plus as per ICRA reports. The survey included 10 housing finance companies, 4 NBFCs and 1 SFB, which are among the top lenders offering such loans in the Indian market.
Stats such as delinquency rates, loan ticket sizes, quality of mortgaged assets, etc. all point towards a single conclusion. The average Indian is more willing to utilise his/her available property value to meet their financial requirements. Although experts suggest that this has more to do with the reduced mortgage loan interest rates, there are multiple other factors at play as well, especially a stagnant real estate sector.
Loans against properties offer high-value loan amounts without any end-user restrictions. Few financial products can offer such high amounts at the loan against property interest rates, which are typically lower than interest rates of most other unsecured or secured loans.
But as a borrower, you should know that the interest rates offered can be further negotiated or curtailed over the tenor. Such loans come with multiple variables such as property value, type of interest rate availed, LTV offered, etc.
Here are a few things you need to know before availing a loan against property which can help you to avail the most affordable rates of interest.
Tips To Get Affordable Rates Of Interest On Your Loan Against Property
- Make Sure You Have A High Value Property To Mortgage –
The amount of funds you can avail with a loan against property is largely, if not fully, dependent on the market value of the property you mortgage. RBI mandates a maximum of 90% LTV for a loan against property. Lenders offer an average LTV of 75% across India on loans against properties as per CIBIL reports.
As a borrower, consider the LTV as the single most important criteria to availing a loan against property. LTV or Loan to Value ratio is the funds availed as a percentage of the current market value of the property to be mortgaged.
A high-value property is sure to secure approval for a larger loan amount than a comparatively lower value property, irrespective of other variables. But that alone will not help you avail easier interest rates.
- Apply For An Easier Loan Amount –
To follow on, if you own a high-value property to mortgage, you can avail a higher loan amount. But you can help yourself avail lower interest rates if you do not apply for the highest loan amount you are eligible for.
Lenders determine the LTV of a loan based on the valuation of the property to be mortgaged and the financial capability of the applicant. If you are eligible for an LTV of 75%, you may be able to negotiate lower interest rates when you avail a lower loan amount and thereby decrease the LTV. Higher the LTV availed by the lender, the higher the risk. If you avail a lower loan amount, you will reduce the risk for the lender.
Always aim to apply for a lower loan amount than the eligible loan amount.
- An Above-average Cibil Score Can Help Avail A Higher Ltv –
Your CIBIL score is a numerical representation of your financial history. Every positive pointer such as timely repayments, no-default management of credit and debt accounts, low credit card utilisation, etc. and negative pointer such as missed EMIs, loan defaults, multiple loan applications, etc. form your credit history. Your current CIBIL score represents you financial behaviour. An individual with a high CIBIL score will be offered with better loan terms, especially interest rates.
- Assess The Lending Rate And Market Conditions –
The most affordable interest rates available today may not be so after a year. Both unsecured and mortgage loan interest rates vary as per the MCLR and the RBI’s repo rate. If you want to avail the lowest rates, you must have a proper idea about the lending rates offered by financial institutions.
Lending rates vary as per revisions to the MCLR. Look into the lending rate history. If you find that the current rates are towards the bottom threshold, refer to fixed interest rates. Floating rates change with revisions in the MCLR unlike fixed rates, although the latter are at least 1.5% higher than floating Interest rate. If you find the current rates are above the average as per history, opt for floating rates instead which are observantly bound to go down later during the term.
You can refer to lenders such as Bajaj Finserv for a Loan Against Property for attractive interest rates as well as multiple borrower-friendly features such as the Flexi Loan facility and no-charge part prepayment and foreclosure.
Bajaj Finserv also provides pre-approved offers on such loans which make the process to avail them easier and quicker for you. These offers are also available on home loans, personal loans, business loans, and on numerous other financial products as well. Make sure you have the list of documents needed to apply for a loan against property handy. Keep these tips in mind to make the loan availing process hassle-free.