Current Loan Against Property Interest Rates in India

Planning to start a new business but is the shortage of funds keeping you from taking the plunge? You can now leverage your property and avail of a loan against it and live your dream of becoming an entrepreneur. 

A loan against property (LAP) is a service offered by financial institutions using which you can receive a quick loan by mortgaging a property owned by you. The property could be a piece of land or a residential or commercial property. A property loan is, thus, a secured loan and helps you receive high credit at low-interest rates. Currently, the loan against property interest rates in India vary between 8.15% to 11.80% p.a.

Features of Loan Against Property

• Loans against property can be availed of for personal or business needs by leveraging a residential or commercial property. Loan tenor may vary from medium to long periods.
• The interest rate charged is higher than home loan rates but lower than personal and other credits.
• Owners of property with higher value tend to get a relatively better deal, meaning a lower interest rate 
• Here, lenders use professionals to evaluate the property thoroughly before sanctioning the loan
• One can avail of up to 60% of the value of the mortgaged property as a loan

Loan Against Property Interest Rates in India

Loan against property interest rates in India varies between 8.15% and 11.80%. The interest rate that gets offered to a borrower depends on several different factors. However, before we discuss these factors, let is look at the two types of mortgage loan interest rates available in India. 

Fixed Interest Rate 

In a fixed-rate loan against property, the interest rate remains the same for the loan repayment tenor. The interest component of the EMI decreases every month. However, the overall EMI amount remains the same. This happens because the interest is calculated on the outstanding loan balance.

Floating Interest Rate

The floating interest rate or adjustable interest rate is where the loan interest rate does not remain the same over the loan tenor. In this, the interest rate moves up or down in response to changes brought about by the central bank of the country or external factors. Some lending institutions however fix an upper limit for such property loan interest rates to deal with these fluctuations. In a floating interest rate, your EMI is recalculated by the lender as per the change and remains the same until the next rate change. This leads to a change in your monthly instalments.

Let us now look at the factors that affect loans against property interest rates. 

Factors Affecting Loan Against Property Interest Rates

Property Profile

Loan against property interest rates depends on the property being used as collateral. Lower interest rates may be charged for self-occupied residential properties as compared to the rates charged for commercial properties. The location, age, cost, surroundings, overall condition, and market value of the property also decide the interest rates. A property in a prime location has a higher demand and resale value and thus carries a lower interest rate than old and worn-out properties which have a lower resale value.

Credit or CIBIL Score 

The credit score of the applicant is a major loan against property eligibility criteria and also helps in deciding property loan interest rates. The lender investigates the credit score or CIBIL score of the borrower to decide on a loan against the property interest rate to be offered to them. So, a person having a 750+ CIBIL score can get a property loan for a lower interest rate than a person having a low score. Having a high credit score gives the applicant high negotiating power for competitive interest rates when availing of a loan against property.

Applicant’s Profile

Property loan interest rate is also influenced by the loan applicant’s profile. 

Age –Individuals nearing retirement, may be charged a higher interest rate compared to a young and recently-employed person.

Employment Status –Salaried applicants may get lower interest rates due to higher job/income certainty while self-employed applicants with irregular income flows may be charged higher interest rates due to a risky profile.

Income – Borrowers with a steady and stable source of income can repay the loan without much difficulty and such individuals can negotiate for a lower loan against property interest rates.

Loan Tenor

The loan tenor that a borrower opts for also affects the interest rates on the loan against the property. Loans having a shorter loan repayment tenor will have lower interest rates as the risk of default for the bank is lower. However, in the case of longer tenors, the possibility of the borrower defaulting is greater, leading to an extended risk for the bank. So, the banks often increase the property loan interest rate to compensate for this.

Relationship with Lender

Applicants having a good relationship with the lender can get attractive interest rates on loans against property. Borrowers having a long and impeccable payment record of loan repayment with a lender are usually offered lower rates of interest than other individuals. Also, new borrowers might have to undergo a strict credit appraisal process, unlike old borrowers with a long-standing relationship with the bank.

Economic & Other Factors

Factors like inflation, repo rates, govt. policies play a huge role in determining the interest rates on loans. For example, when inflation in the economy rises, the Reserve Bank of India (RBI) raises the repo rates to control liquidity. This increases the interest rates on all types of loans. And similarly, when the repo rates are lowered, the interest rates on loans also tend to go down. 

Final Words

Loans against property interest rates in India are attractive and therefore, these loans are a popular type of loan that can be availed to get lump sum funds for meeting any type of medium to long-term personal and business needs. Using a loan against property EMI calculator, an applicant can calculate in advance the EMIs for such loans and check whether they meet the loan against property eligibility criteria. This makes the loan journey smooth and hassle-free.