A loan against property is availed against a commercial or residential property. The property is kept as collateral with the lender until the loan amount is repaid. Like any other loan, the interest rate is a key parameter that will determine how affordable the property or mortgage loan is.
So, what are the things you can do to get a loan against property at low-interest rates? Here are some tips to keep in mind.
5 Tips for Low-Interest Rate Property Loans
- Borrow the Minimum Possible Principal
While it is good to borrow a little extra money to spend in case of emergencies or unexpected purchases, never over-borrow money. The higher principal you borrow, the more interest you have to pay because they are proportional to each other. Moreover, the loss for the lender is higher if you default, so chances are they will charge a higher interest rate as well.
- Choose the Right Type of Interest
Interest rates need not be always fixed; there are adjustable-rate mortgage (ARM) loan payments as well, where the interest rate varies according to some index. These loans against properties usually have lower prices in the initial months and probably an overall reduced cost but with a higher risk, since the interest rate can vary a lot. If you plan to sell off the asset to another party soon quickly, then the ARM loan is a better option because the initial rates are low.
For example, a “5/1 ARM loan” means that there is a fixed rate for five years, followed by a variable rate that adjusts every year.
- Check the Value of the Property
The location of the house or the property greatly influences its value; a house in a prime location of a city will cost much more than an identical house located elsewhere. Usually, such high-end properties fetch you a lower interest rate because it indirectly indicates that you are in fact capable of paying off the loan without defaulting.
Always take the help of a professional evaluator know the exact value of your property before approaching a lender for a loan. The higher the values, the higher is the loan amount you can get, if you meet all the other criteria.
- Eligibility and Credit Score
There are certain criteria you must satisfy, and there are a set of documents required for loans against property. Getting these verified beforehand saves you a lot of hassle and avoids rejection of the loan too. Typical documents that are asked are a government ID proof (like a voter card), address proof, proof of income and other property documents (agreement letter, etc.).
The credit score is a measure of your ability to pay back the loan. If you have a steady job with sufficient income, no history of defaulted loans or payments and if you pay off all your debts on time, you have a good credit score. Always make sure that you check your credit score before you go ahead with applying for a loan to make sure it is not wrongly reported as a lower value. A bad credit score creates the impression that you are likely to default, thereby making the lender charge a higher interest rate.
- Shortlist Several Lenders and Choose the Best One
Different lenders will have different policies, schemes and interest rates for similar property loans. Since this is an expensive investment, it is worth looking up and surveying several lenders to, do your research and find out which one has the lowest interest rate or the best offer. Some might offer special discounts for certain types of customers or properties in certain areas; some might offer loans even for those with lower credit scores and so on. Don’t just go to the first lender you come across.
So, now you are in a well-informed position when it comes to taking a mortgage loan. Remember that a house costs a fortune, so even reducing the interest rate by a small margin can save you a lot of money. Keep all the loan against property documents ready, check all the relevant parameters and then go to the lender who offers the best deal.