Opting for a loan against property is a crucial decision to make as it involves putting your property on the line. It takes a lot more than just getting the paperwork done to get the best property loan. Thus, before applying for one, make sure you have done your research and are well-versed with the current mortgage loan interest rate – the various kinds of interest rates offered and how they can affect your monthly budget. Here is all you need to know about loans against property interest rates.
Types of Mortgage Loan Interest Rates:
When taking a mortgage loan, most lenders offer loans on two types of interest rates: fixed interest rates and adjustable or floating interest rates. Let us understand the difference between the two.
Fixed Interest Rate:
A fixed rate of interest means that the interest offered by the lender will remain constant or unchanged throughout the loan. Additionally, this implies that the EMI (Equated Monthly Instalment) also remains fixed. Such interest rates are typically set at a higher margin of 1-2% as against flexible rates.
Choosing a fixed-rate mortgage loan is advisable if you are comfortable with paying the stipulated EMI. To ensure you never default on the EMIs, try and keep them at or below 25% of your salary. Get help from the online mortgage loan calculator to ensure this and to plan effectively. The fixed rate of interest helps you plan your finances better without the fear of risks as the EMI and loan tenor remains unchanged.
Floating Interest Rate:
The floating or adjustable rate of interest fluctuates over time depending on the changes in the market. With the change in the rate of interest, the payable EMI also changes during the entire loan tenor. Some financial institutions often set an upper limit for floating rate mortgage loans to deal with such fluctuations.
Going for floating interest rates is a good idea if you assess the base rate will either remain the same or lower over time. The interest charged will either be the same or reduced in this case. Moreover, such LAP loan interest rates allow you to make prepayments so the loan can be paid off faster and the total interest charged reduces over time. So, if you have just received a hike, consider opting for floating interest rates.
How to Calculate Property Loan Interest Rate:
When taking a loan against property, know that you have to repay the borrowed amount along with monthly interest. By paying your EMIs, as per the amortization plan offered by the lender, you can pay off the entire amount within the stipulated period.
How to Use a Calculator for Property Loan Interest Rate:
The online calculator is a customized tool that works by using a simple formula and just three variables – the rate of interest, loan term, and principal amount.
The mathematical formula is as follows:
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
[Here, P denotes the principal amount, R denotes the interest rate, and N denotes the loan tenor].
Tips to Getting the Cheapest Mortgage Loan Rates:
If you are planning to avail of a mortgage loan, know that now is the right time to do so as the interest rates are at a historic low. Further, here are a few tips on what you can do to lower the interest rate applicable on your mortgage loan.
Stay on Track with Your EMI Payments:
Make regular EMI payments to avoid paying higher interest on your existing loan.
Pay More on the Down Payment:
The higher you pay on your down payment, the lower will be your loan amount and that will automatically affect the interest rate.
Maintain a Good CIBIL Score:
A CIBIL or credit score of 725 or more gives you an edge when negotiating for competitive LAP loan interest rates with the lender.
Ensure a Stable Income:
Lenders tend to charge higher mortgage loan interest rates if you do not have stable employment or income. Thus, before planning on switching between jobs or business ventures, be mindful of the effects it may have on your property loan interest rate.
The Bottom Line:
As a borrower, you must be aware of the different loans against property interest rates and how they will affect your repayment plan. Compare various lenders and pick one that fits well within your budget.