Last Updated on February 23, 2023 by Tabraiz
While searching for loans, borrowers often come across a term called mortgage loan. The answer to what is a mortgage loan is that it is a secured loan that borrowers can get by keeping an existing commercial or residential property as collateral.
What is the significance of mortgage loans in India?
The following are the reasons why opting for a mortgage loan is essential and how it is significant:
No end-usage restriction
The greatest significance of mortgage loans is that it helps borrowers fulfil their personal or professional financial needs. Moreover, it comes with no end-usage restriction; thus, borrowers can avail it to meet any emergency medical need, complete higher education, go for a long-awaited vacation or meet business expansion goals.
Higher loan amount
For either personal or business requirements, a loan against property can help borrowers manage their significant expenses. In addition, borrowers will typically receive financing up to 75% to 100% of the market value of their property because it is a secured loan.
Since it is a collateral-based loan, it offers lower interest rates and longer terms, which raises a borrower’s loan eligibility and enables higher loan amounts.
Low mortgage loan interest rates are one of the greatest benefits of LAPs. Since a loan against property is secured, the interest rate is lower because there is little risk involved. As a result, a lower interest rate results in more affordable monthly payments (EMIs). Thus, this type of loan is even more beneficial for people under a budget.
Flexible repayment tenor
With a loan against property, borrowers can acquire a longer repayment period than with an unsecured loan. Since most borrowers prefer low-interest rates and lengthy repayment options, loan against property is a lucrative alternative.
Now that individuals know what a mortgage loan is and its significance, they should also know the factors that affect the interest on their LAP.
Factors affecting interest rates on LAP
The following factors affect the interest rates that a lender charges on a borrower’s LAP
The applicant’s age:
Most lenders do not prefer too old or too young borrowers. The preferable age is between 25 to 60, and it may vary according to the lender’s eligibility parameters.
The mortgage loan rate of interest is also affected by RBI’s monetary policies, economic growth rate and inflation rates.
Collateral property type:
The type of property that a borrower keeps as collateral also affects the interest rates. For example, a residential property may yield a lower interest rate than a commercial property.
Quantum of the loan:
If a borrower gets a higher amount of loan, the interest rates could be slightly higher due to the risk factors present.
Borrower’s income level:
Borrowers with higher monthly income have greater chances of qualifying for lower interest rates.
Interest rate type:
The two types of interest that any lender offers are floating rates and fixed rates. Borrowers should talk to a financial institution representative to know which one among, floating or fixed rate, is better when they opt for a LAP.
Moreover, a property in a posh location, with all the basic amenities and good connectivity, tends to attract a low mortgage loan interest rate. This is because the lenders can easily dispose of such properties and recover the unpaid dues in case of any credit defaults.
Choosing the right loan tenor, a lender with an affordable interest rate and affordable EMI payments is something that a borrower must ensure while availing of LAP. Apart from that, borrowers should also know the list of documents required for applying for a LAP. This will save both the time of the borrower and the lender and will expedite the loan process.
Furthermore, to draw more customers, several financial institutions provide pre-approved offers to their new and existing customers. These offers are available on a number of secured and unsecured products.
Borrowers can check their pre-approved offers by entering their credentials on the pre-approved section of the websites. This way, they can choose a lender offering the lowest interest rates the best service terms.Know that you know what is a mortgage loan; apply for the same only after reviewing the eligibility criteria and documentation requirements.
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