Taking a mortgage loan or a loan against property is a crucial decision to make, as it involves putting your asset at stake. Therefore, thorough research and market comparison is important to avail competitive mortgage loan interest rates. This article will walk you through the various interest rate options available and how they affect your monthly EMIs.
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Types of Mortgage Loan Interest Rate Available in India
Lending institutions in India offer two types of mortgage loan interest rates, which are as follows:
This refers to a constant rate that is locked in till the reset period. Additionally, the monthly EMI also remains fixed throughout the loan tenor. In addition, the EMI is fixed for the duration of the loan.
For instance, if you opt for a loan of Rs.15 Lakhs at 10% fixed interest rate for a period of 15 years, then following a mathematical formula, you will need to pay an EMI of Rs.10,476 each month. The rate of interest would be Rs.8,333 in the first month and Rs.8,313 for the next month. Thus, the interest component of your EMI will decrease every month without the overall EMI amount being changed. This is due to the interest being calculated on the outstanding balance.
Also referred to as variable or adjustable rate, floating interest rate is one that simply varies with the market over time. This means that a couple of years later you may not find rates equal to your current mortgage loan interest rate. Some lenders set an upper limit on such loans to avoid fluctuations. In case of floating rates, the EMI is recalculated every time the rate of interest changes.
For example, if you opt for a loan amount of Rs.15 Lakhs at 10% floating interest rate for a tenor of 15 years, your rate of interest will be 10% in the initial years and change by 0.25% in the next few years. This change will also affect your monthly instalments.
Eligibility criteria for a mortgage loan
A mortgage loan is a secured loan that allows borrowers to gather high quantum funds by pledging their property as collateral. Borrowers can use the fund to meet expenses like child’s education, funding marriage, medical expenses etc.
Besides knowing what is mortgage loan, borrowers must know the eligibility criteria to apply for a mortgage loan.
Borrowers must meet the following eligibility criteria.
- Individuals must be Indian.
- The age bracket is 23 to 62 years for a salaried individual and 25 to 70 years for self-employed individuals.
- Salaried individuals must have work experience of 3 years; on the other hand, self-employed individuals must show a stable source of income.
Meeting the above-mentioned factors and a decent CIBIL score will help one get lower mortgage loan interest rates.
How are LAP loan interest rates calculated?
When it comes to loan repayment, lending institutions employ an amortization calculation to evaluate your monthly dues. This includes dividing the principal and loan interest to determine a payment schedule.
Paying your EMIs on time as per the amortisation plan lets you pay off full debt within a stipulated period. However, note that mortgage loan rates may fluctuate based on the type of interest rate you choose. Furthermore, your repayment tenor will also play a vital role in deciding the interest rate and monthly instalments.
What is Annual Percentage Rate and How Does It Differ from Loan Against Property Interest Rates?
The Annual Percentage Rate (APR) on mortgage loans refers to the overall cost of loan i.e. your loan against property interest rates plus other charges, such as the ones discussed below.
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This is a one-time nominal amount that needs to be paid separately to the lender to cover all costs for processing the loan.
If you have planned your finances right and wish to clear your dues before the end of the tenor, then you will need to pay a certain amount based on the percentage of the payable outstanding amount. However, borrowers who have opted for floating rates need not pay any foreclosure charges as per RBI guidelines.
Loan Rescheduling Charges
In case you are having difficulty clearing your dues, you may ask your lender for an extension of the repayment tenor. In such case, lenders charged an additional fee for rescheduling the repayment period.
This refers to the charges that need to be paid for property verification and paperwork. Legal charges typically range from Rs.5000 to Rs.10,000.
To calculate exact monthly obligations, use a property loan EMI calculator.
How to Use LAP Loan Interest Rate Calculator
A mortgage loan calculator is an online tool that helps you find out how much EMI you will be paying each month. It works by following a mathematical formula and taking three variables—the principal amount, loan term, and interest rate – into account.
EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
P is the Principal loan amount
R denotes the rate of interest
N stands for the loan tenor
Using the EMI calculator involves a few simple steps:
- Visit the lender’s online portal and access the online calculator.
- Select the loan amount, enter the interest rate, and your preferable loan tenor.
- Click on the ‘Submit’ button to check your EMI amount.
The online calculator is a customized tool that allows you to reset input as many times as you want.
When opting for a loan against property, it is only natural that you would want to agree upon the lowest mortgage loan interest rates. As a borrower, be prudent about choosing your interest type, repayment schedule, principal amount, and most importantly, a reputable lender who would offer you the best deals and policy terms to fit your budget.
How to apply for a mortgage loan?
Borrowers can follow the following step to apply for a mortgage loan.
Step 1: Firstly, open the online loan against property application form from the lender’s official website.
Step 2: Fill up the form with relevant details. Attach documents
Step 3: Enter income details to check the best offers.
After submitting the form, a representative from the lending institution will contact the borrower to carry forward the lending process. To sum up, a mortgage loan is an effective financial solution and help one manage their financial liabilities well. However, borrowers need to take care of the intricacies before availing of the loan option.