LAP loans or loans against property are funding options that have become popular among borrowers lately, especially after the pandemic created hurdles to regular income for many. As secured advances, these loans were thus easy to avail for individuals who owned either residential or commercial property/properties.
Rightly so as these loans allow easy access to financing in minimum possible time. The eligibility requirements are simple and documentation minimal for availing a property loan.
Online applications have further only simplified loan accessibility for many, enabling easy application from the comfort of one’s home. Further, the rate of interest on LAP loans remains affordable to due to the financing arrangement being collateral-based.
It only promotes the utility of the advance among borrowing aspirants looking for high-value financing. Nevertheless, as long-term advances of high value, property loans often end up accumulating high interests. In that case, even a slight difference in the rate applicable can result in significant savings. One must thus strive to bring down the rate of interest on LAP loan.
Smart Ways of Interest Rate Reduction on Property Loans
1. Apply with a credit score above 700
The common notion, when it comes to property loans, is that one does not require to mandatorily hold a minimum credit score to avail such financing. While this holds some substance to some extent, it is not entirely true. Multiple reasons stand to refute this belief. For one, complete absence of credit score, while allowing property loan accessibility, results in high rates of interest on these advances.
Further, if you hold a low credit score, it raises a question on your creditworthiness. Increasing the lender’s risk of providing you financing. Hence, the lender may be apprehensive of approving the loan. Even if they do, it might be on terms not quite favourable to you. Hence, it is ideal to hold a credit score of at least 700 to avail financing at favourable terms like a low rate of interest on LAP loan.
2. Choose a low-LTV property loan
Property loans with reputed lenders come with LTVs of up to 90%. Meaning that the borrower can raise up to 90% of the property’s market value as a loan. While it paints a rosy picture for your finances, availing a loan at such a high LTV may not turn out to your favour.
It is primarily because a high LTV also increases the risk associated with the loan. Hence often attracting higher rates as well. It is thus best to keep the LTV on your loan as low as possible. And borrow only as much financing as needed to keep the overall cost of your loan in check.
3. Use a new property for mortgage
If you own multiple properties and are planning to avail a loan against property. It would be ideal to utilise the property that is the newest for mortgage creation. As loan collateral serves as the security for such financing, it must be in best shape and value.
A new property can easily meet these criteria, keeping the risk associated with such loan as low as possible. This can, in return, help in securing the lowest rate of interest on LAP loan.
4. Borrow as per your financial standing
Of all the aspects, one thing that you cannot ignore is that it is crucial. To avail financing only as much as is easily accommodated in your monthly income. Now to that end, you must check your loan affordability based on EMI computation.
To calculate the EMIs and assess overall affordability of your loan. Make sure to use an EMI calculator for LAP and finalise the loan amount as well as tenure accordingly. The financial tool can be accessed from your selected lender’s website with much ease.
Keeping these factors in mind and taking the necessary steps in time. One can easily secure low rate of interest on LAP loan. Along with the interest rate levy, it is crucial to check other applicable charges as well to determine overall affordability of your advance.
You may further enquire with your lending institution regarding the fees. And charges related to facilities like prepayment and balance transfer of your property loan. In case you make use of these features, so you have a detailed understanding of your loan product before borrowing for an informed decision.