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HomeFinance4 key Factors That Impact Your Mortgage Interest Rate

4 key Factors That Impact Your Mortgage Interest Rate


When taking big-ticket loans like a loan against property or a mortgage loan, be aware of your financial responsibility and plan accordingly. Remember that a mortgage loan requires you to

pledge your property as security in order to acquire the funds. This increases the risk of borrowing, but since it decreases the risk of lending, it allows for a cost-effective property loan interest rate. However, even here, there is a room to negotiate for the best mortgage interest rate. In fact, simply being able to afford your EMIs isn’t enough, as you need to ensure that your ability to generate wealth or put aside a decent amount in savings isn’t overly hindered.

Devoting a large percentage of your income towards your EMIs is never a smart idea and this is where favourable loan terms can help. Knowing what affects your mortgage interest rate helps you negotiate for better terms. To better understand the factors that affect the property loan interest rate, take a look at the following pointers.

Applicant’s financial profile                                                      

The first aspect that lenders take a note of is your financial profile. The loan against property eligibility criteria constitute the first checkpoint you need to go through, and this usually comprises the first stage of assessment. Here, the lender inspects your financial profile thoroughly and assess if there are any red flags with regards to your financial habits. Discrepancies with prior loan payments, fluctuations in income, or issues with age can be some problems that can affect property loan eligibility and increase your risk profile. Moreover, self-employed applicants are likely to be charged a higher property loan interest rate as compared to those that are salaried.

Credit score

Your credit score is one of the most important factors by which lenders judge your creditworthiness. While credit scores are known to play a vital role in the approval of unsecured loans, lenders investigate your credit report when determining your mortgage loan interest rate as well. This is because your credit score directly indicates your past performance with handling credit. A high score means you’ve got good experience with different types of credit and can handle debt without defaults. Naturally, this means you have a higher chance of a getting a favourable property loan interest rate. Conversely, a poor or even sub-par credit score reduces the chances of you getting a loan on favourable terms and may even be the cause of rejection, in some cases.

Property value and condition

The property is a key component of the loan against property eligibility terms. However, the condition and value of the property you’re pledging are also important aspects that play a role in determining the mortgage interest rate offered to you. Firstly, the property’s type is taken into consideration. Commercial and residential properties are valued differently, thus leading to different interest rates. Similarly, location also matters. If the property you’re pledging is in a prime location, the lender has more security and can lend on lenient terms. All of these factors ultimately dictate the property loan interest rate you can get or negotiate for. 

Loan  tenure

In most cases, a loan against land is a long-term commitment. As such, your interest outgo is higher, but the EMIs are comfortable and easier on the pocket. However, if you choose to opt for a shorter  tenure, lenders are likely to charge you a higher interest rate. This may be because it is more of a risk to lend to you, owing to added pressure on your finances brought on by higher EMIs.

When borrowing via such big-ticket offerings the mortgage loan interest rate,  tenure, and sanction are 3 of the most important factors to be aware of. As such, it your responsibility to know all you can about these terms and how they are influenced.  Understanding the things that factor into your property loan interest rate, such as how well you pass the property loan eligibility criteria, can help you make the necessary tweaks required to put yourself in a favourable position. Remember, with such an offering, even a 1% difference on the mortgage interest rate can make a huge difference to your EMIs. So, armed with this information, ensure to borrow wisely when the time comes.

Chris Morgan
Chris Morgan
Hi, I'm Chris Morgan. I'm very passionate about my work. Even I'm very fond of blogging as it enhances my knowledge about the various aspect of the internet. Follow my blog
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