People often use their property assets to acquire a mortgage in India. With a loan against property, an individual can meet any financial obligation. While obtaining a mortgage loan, an individual puts their property on the line. The property will be used as collateral for a mortgage loan in India. Since the property is at stake, people should invest some time in choosing the right mortgage loan. It includes researching the interest rates of mortgage loans from different lenders. Read on to know more about the interest rates on mortgage loans in India.
How do financial institutions apply interest rates on mortgage loans?
When someone takes a loan on a property, the principal loan amount is paid in instalments. Along with the principal amount of the mortgage, the debtor also has to pay the interest charge. The interest charge is included in every instalment of the mortgage loan. If financial institutions only receive the principal loan amount at the end of the loan tenure, they will earn nothing. Interest charges are the profits a financial institution makes over a period by offering mortgages to individuals. As per the amortisation plan, an individual pays the interest and principal charges with pocket-friendly instalments/EMIs. Interest rates are pre-informed to the debtor before approving a mortgage loan.
A property’s mortgage loan interest rates depend on numerous factors. The loan tenure, amortisation plan, and the current market rate play a significant role in deciding the mortgage loan interest rate. Once the principal amount of a mortgage loan is returned to the financial institution, no interest charges are applied, and the loan is closed. Sometimes, individuals pay more than expected interest charges on a mortgage loan. It happens when the repayment tenure is more and interest charges are paid monthly. Therefore, people should habitually research and choose a mortgage loan with a lower interest rate. One should also know about different types of interest charges applied to mortgage loans in India.
Types of mortgage loan interest rates applied by lenders
Fixed mortgage loan interest
A fixed interest rate is applied throughout the tenure of the mortgage loan. The debtor informs the interest rate before the loan tenure starts, and it remains the same. For example, consider the fixed interest rate for a mortgage loan as 10%. If the loan tenure is ten years, a 10% interest charge will be applied to the available principal balance in every instalment. If you check the interest charge today or after five years, it will be the same (10%). The fixed interest rate for a loan on property will not change according to the market condition and economic factors.
Adjustable mortgage loan interest
Many financial institutions offer adjustable interest rates on mortgage loans. Some financial institutions also refer to it as floating interest rates. A floating interest rate changes throughout the mortgage loan tenure. The benchmark rates set by the Reserve Financial institution of India influence the floating interest rates. Usually, the floating interest rate for a mortgage loan changes every two/three years. Sometimes, floating interest rates can be lower than the general market interest rates on mortgage loans. However, floating interest rates can also prove expensive for a debtor.
Understanding the concept of mortgage loan APR
Many individuals are confused between the Annual Percentage Rate (APR) and the interest rate of a mortgage loan. Before acquiring a loan on a property, individuals should know the concept of APR. APR is the overall cost of the mortgage loan and includes the interest charges. Apart from the interest charge, APR includes foreclosure, processing, insurance, loan rescheduling, and other charges. A debtor uses APR to calculate the monthly obligation after a mortgage loan. APRs will always be higher than the interest charges as they include several loan-related costs.
Individuals can use online interest rate calculators to know more. Online interest rate calculators will give you an idea of the interest charges based on the mortgage loan amount. Individuals with stable employment and a good credit score might get affordable interest rates on mortgage loans. Contact the respective financial institution to know more about property mortgage loan interest rates. Choose a mortgage loan plan with an affordable interest rate now!