Mortgage loans are one of the important loan categories whereby the borrower is agreed to give away his home with interest to the lender in case of failure to the repayment of the loan amount. This loan is taken to buy a new home or to borrow money to fulfill some other obligations. It is a secure loan as the borrower will hand over the right to confiscate his property to the lender. Usually, the interest rate on mortgage loans varies from 8.15 to 11.80 percent. Some institutions offer mortgage loans as high as 10 crores. The repayment period of mortgage loans varies from 15 to 18 years. So, the borrower gets enough time to repay the amount. The percentage of mortgage loan interest depends on several factors which we shall uncover here.
Factors responsible for mortgage interest rate
The mortgage loan amount usually covers 60 percent of the value of the surrendered property. This factor is called the loan-to-value ratio. This rate will be finalized by the lender. Some lenders fix it up to 70 to 75 percent of the market value of the property.
Mortgage loan interest tends to be low as it comes under the secured loan. So, the borrowers feel less burdened while repaying the loan. However, the following aspects are significant when deciding the interest rate of a mortgage loan.
- Location, age, and the nature of the property
The type of property whether it is residential or commercial will also affect the interest rate of the mortgage loan. The interest rate of residential property will be different from a commercial one. Furthermore, the resale market value of the property and the location will also be taken into regard. If the property is situated in an advantageous location, for example in a city with lots of amenities its resale value will go up. So, the leaders will scrutinize this aspect to recover the loan amount in case of non-payment. In such cases, the borrower will end up paying a low-interest rate. Additionally, the age of the property is another important determinant. If it is fresh construction, the interest rate will be low.
- Credit history
The lenders will check the credit profile of the borrower before finalizing an interest rate. A score of 750 and above is needed to secure a good interest rate. Moreover, the age of the applicant is also considered here. If the borrower is nearing retirement his interest rate will be higher. The lender will also check if you had taken any loan earlier and if you made the repayment on time. If you maintain a healthy credit score you will get the best mortgage interest rate.
- The amount of loan
High-value mortgage loans, those that cover almost 80 percent of the property value will have a higher interest rate. The risk with the lender increases in such cases and to minimize the risk they always levy a higher rate of interest. Hence the borrower needs to figure out how much money he exactly requires fulfilling the purpose of the loan to avail a low-interest rate.
- Duration of the loan
Normally the mortgage loan repayment duration is longer, allowing the borrower to choose the tenure at his convenience. If the repayment duration is short for a high loan amount, the borrower will be considered risky, and the interest rate will go up.
The mortgage loan type also affects the interest rate
There are different types of mortgage loans available-loan against property, reverse mortgage, home loan, commercial purchase, lease rental discounting, etc. The mortgage loan interest rate also varies according to the loan type. A loan against property is one of the most familiar types of the mortgage loan. The loan against property eligibility terms and conditions are stated below.
- The borrower should complete 21 years of age
- The maximum age of the borrower should be between 65 to 70 years
- The borrower should be a salaried employee working permanently with an organization or a self-employed individual who is an income taxpayer.
- The minimum annual income should be 3 lacs
- A minimum work experience of 1 to 5 years is recommended
- A CIBIL score of 750 or more
Additionally, you will require submitting your address proof identity proof, income proof, income tax certificates, and property documents along with your application. The eligibility conditions may slightly vary according to lending institutions. You can take the help of a loan against property eligibility calculator to check the factors to see how much loan you can qualify for.
The credit option and the lender chosen for a mortgage loan also decide the interest rate. The features and benefits of such loan options vary. For example, with a loan against property, there is no restriction for spending the loan amount. The borrower has the freedom to utilize the loan amount according to his requirement, be it a medical emergency, house renovation, business expansion, etc. It usually comes with a flexible interest rate. The current market condition also impacts the mortgage loan interest rate if it is a floating rate. There are two types of mortgage interest rates, fixed and adjustable. A fixed rate of interest will be unchanged throughout the period of the loan while the adjustable rate will change over time. Adjustable or floating loan rates are lower than the fixed rate.