Availing of a loan against the property during a financial crisis by keeping your asset on the line as collateral is known as a mortgage loan. The collateral in a mortgage loan could be a piece of land or residential or commercial property. So, we can say that a loan against property is a secured loan that helps you receive high credit at lower interest rates for tackling business, personal or health-related issues. The chance of getting such a loan is higher as it is a low-risk type of loan for the lender. However, proper research needs to be done to avail of the best loan against property interest rates.
How is Mortgage Loan Interest Rate Calculated?
When availing of a mortgage loan, you must repay a part of the borrowed principal amount along with interest every month. The lenders or banks use an amortization calculator to calculate your mortgage loan interest rates. They segregate the principal and interest portions of the loan to generate a proper payment schedule for the borrower. The amortization plan allows you to repay the debt within the specified time frame.
Based on the mortgage loan interest chosen, the mortgage loan rate of interest may fluctuate with time. The loan term, or repayment tenor, also plays an important role in determining the mortgage loan rates and monthly installments to be paid by the borrower. A long mortgage loan against a property tenor will lower the monthly EMIs but at the end of your loan term, the overall cost in the form of interest rate will have increased.
Mortgage Loan Interest Rate Calculator and Its use
A mortgage loan interest rate calculator helps borrowers to know and calculate their loan EMI before availing of the loan. Using this tool, borrowers can quickly calculate their monthly costs for various loan amounts and terms, and select the best mortgage rates from among them using the principal amount, loan tenor, and interest rate.
Formula for Loan EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
P here stands for the Principal loan amount, R is the interest rate of the mortgage loan and N for the loan tenor.
Follow these steps to calculate the mortgage loan EMI:
- Choose a loan amount
- Input the interest rate
- From the slider, choose the desired tenor for your loan, and click on the submit button. The calculator will give you your EMIs instantly.
Mortgage Loan Interest Rates Available in India
There are mainly two types of mortgage loan interest rates available in India. They are:
Fixed Interest Rate
For a fixed-rate mortgage loan, the interest rate remains the same for the whole term. Whether you check your mortgage loan interest rate today or after 5-10 years, it will be the same throughout. The interest component of the EMI decreases every month without changing the overall EMI amount. This is so because the interest is calculated on the outstanding balance.
Floating Interest Rate
The floating interest rate or adjustable interest rate is where the interest rate fluctuates over the loan tenure. In this, the interest rate moves in response to changes brought about by the Reserve Bank of India’s (RBI) benchmark rate. In other words, the mortgage loan interest rate rarely remains the same as the current mortgage interest rate. Some lending institutions establish an upper limit for such mortgage loan interest to deal with these fluctuations. In a fluctuating interest rate, your EMI is recalculated by the lender as per the change, and it remains the same until the next rate change. The change in interest rate also leads to a change in your monthly installments.
Ways to Get Affordable Mortgage Loan Interest Rates
Good CIBIL Score – A 750+ CIBIL score shows the creditworthiness of the borrower and their willingness to clear all debts and EMIs on time. It also gives the borrower the chance to negotiate with the lender for competitive interest rates.
Profile of the Applicant – The applicant’s, age, occupation, monthly income, etc., also impacts the interest rate on mortgage loans. An applicant just a few years away from retirement will pay higher interest and EMI for a shorter tenor, while younger salaried people with stable jobs will get better deals on interest rates and loan tenor.
Property Condition – The location, age, value, overall condition, and market value of the property to be used as collateral also decides the maximum value of the mortgage loan. A property in a prime location with good facilities has a higher demand and resale value and lesser interest rate than an old property which is a riskier bargain for the lender.
Shorter Loan Tenor – The interest rate on a mortgage loan is also affected by the tenor of such loans. Such loan tenor may be for 15, 20, or 30 years. According to the lenders, the longer the loan tenure, the higher the risk, resulting in higher interest rates. Short loan tenors are less risky and therefore, borrowers taking such a loan are offered lower interest rates.
Getting the best mortgage loan interest rate is the main aim of a borrower, so before borrowing one must do proper research and know what each lender is offering. Since it is a big financial decision, be informed and only then opt for such loans or you could lose your property here.
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