What is a Mortgage Loan?
A mortgage loan is one of the most popular financing options that allow a borrower to avail of high-value loans by keeping their asset as collateral for a fairly long period. Commercial property loans, home loans, and loans against property are the three most common types of mortgage loan available in the market.
Factors Affecting Mortgage Loan Rates
Irrespective of the loan type, you must be aware of the different factors that determine your mortgage loan interest rates.
Credit Score
Your credit score measures your ability to repay the loan amount based on payment history, salary, employment status, etc. The higher the credit score, the better are your chances of getting lower mortgage loan rates. This is because a higher score gives your lender an impression that you are reliable and less likely to default on repayments. Aim for a score equivalent to or higher than 725 to get the best mortgage loan interest rates. Before applying for a loan, check the score and resolve disputes, if any. Even though you cannot improve your credit score magically overnight, you can still ensure that it does not get reduced by mistake.
Property Type and Location
Based on the property type and location, lenders charge different rates of interest. Usually, properties in urban and posh areas have higher resale value and lower mortgage loan interest rate owing to the availability of modern amenities, ease of commute, etc. Besides, rates also vary depending on whether the loan is taken against a residential or commercial property. Similarly, newly built properties are charged lower interest rates as compared to old, worn-out, and damaged properties.
Down Payment
Paying a larger amount as a down payment is a smart way to lower property loan interest rates. A larger down payment fetches you a lower loan-to-value ratio (LTV), which in turn, makes you less risky to lenders. Thus, you may qualify for receiving lower rates of interest, as the lender sees you as more reliable.
Loan Size
Since property loans are high-value credits, borrowers can avail up to 70-75% of loan-to-value against the pledged property. However, the payable monthly instalments, in this case, are usually higher because such high-value loans involve a great deal of risk on the lender’s part. To compensate for the risk of borrowing, the lender may charge you a higher interest rate for a sizable amount.
Before applying for a property loan, make sure you have taken into account all the factors influencing the rate of interest. If you have any queries, reach out to your lender to get a clearer picture.
Mortgage Loan Calculator: How to Use It
Once you are aware of the factors affecting property loan interest rates, you can evaluate rates with the help of a mortgage loan calculator. It is a customized online tool that allows you to compute the monthly instalments.
The online calculator is very simple to use. All you need to do is enter the following details:
- Principal Amount – The maximum amount can be up to 90% of the property’s current market value
- Loan Tenor – This can extend up to 18 years
- Interest Rate – The rate is usually quoted depending on market conditions and the borrower’s eligibility, among other factors
As soon as you enter the above, the calculator will display your monthly instalments, total loan cost, and interest outgo. Because the online tool uses a mathematical formula, you can rest assured that the results are accurate and much faster.
Now that you have all the necessary information in place, go ahead and check with your lender if you are eligible to apply for a loan. Understanding the nitty-gritty of mortgage loan interest rates, eligibility and application will leave you in a better position to weigh your options when taking the plunge.