During the last financial year, secured credits, like home loans and loan against property, grew at a rate of 17.1% and 21.8%. It is largely because of the flexibility of repayment and the affordable mortgage loan interest rate offered by various financial institutions.
Mortgage loans are secured credits, where the principal amount is disbursed against any asset guaranteed as collateral. It is one of the most preferred methods of borrowing a substantial loan amount, as the mortgaged asset reduces the risk involved in lending and allows financial institutions to offer an extended repayment period.
Interest rate applicable on mortgage loans
Secured credits usually offer two different types of interest – fixed and floating. Let’s take a look at these two different types of rates and understand the important factors –
- Fixed rate of interest – This type of mortgage loan interest rate stays equal throughout the repayment tenor. Fixed interest rates are not affected by the fluctuations in financial market, which makes it ideal for individuals who prefer paying a fixed amount as interest for the duration of a loan.
Fixed rates are considered as a safer option as the total interest can be calculated beforehand, allowing for budget planning for the future.
- Floating rate of interest – Floating interest rates depend on the financial market and is revised along with market fluctuations. Floating interest rates usually stay 2% to 3% lower than the fixed rates, which may prove beneficial during repayment.
However, because of its fluctuating nature, floating mortgage loan interest rate is not ideal for individuals who want to plan their finances for the repayment period. Although it exempts a borrower from any prepayment charges levied on the credit in case he or she would like to foreclose the loan account.
Fixed interest rate is better suited for individuals who want lower risk against their borrowed credit, paying at a predetermined rate. Floating interest rate is ideal for individuals who have a better risk appetite and market understanding. Borrowers can benefit from a floating rate if they consider the base rate is likely to become lower after some time.
It is essential for every borrower to study whether floating or fixed rate of interest is better suited when they opt for a mortgage loan. The Reserve Bank of India provides the provision to change the interest rate from floating to fixed or vice versa; however, it can be availed only once for the duration of a loan’s tenor.
Reverse mortgage loan
Reverse mortgage scheme is a purpose-build monetary product that offers financial aid to seniors and retirees. In this case, an individual mortgages a pre-existing, self-owned property, against which the financial institution offers financing either in lump sum or at regular intervals. It is ideal for retirees who want to create a source of income.
Reverse mortgage in India is not so popular, although it comes with several unique advantages. First, an owner does not have to repay the total debt; lenders will be allowed to take ownership after the demise of a borrower and his or her spouse, selling the property to recollect the dues, or the borrower’s next generation can repay their debt and take back ownership.
Reverse mortgage loan in India also allows the provision to keep the ownership of the mortgaged property for as long as the borrower or his or her spouse is alive. It ensures that retirees have a place to live even after mortgaging their property for creating a source of income.
Applicable interest rate
Interest rates for secured credit such as a loan against property usually stay between 10.10% (for salaried individuals) to 10.50% (for self-employed individuals). Companies like Bajaj Housing Finance Limited offer credits at such affordable rates, along with minimum associated fees and charges. These help keep the overall cost of borrowing low and help repay the due amount without any financial strain.
They also provide pre-approved offers to existing customers, which simplifies the application process and helps save time. Such offers are available on home loans, personal loans, business loans, etc. Borrowers can check their pre-approved offer online by sharing only some essential details.
Understanding what are the charges applicable on a mortgage loan, including the details of its rate of interest is essential for every borrower to ensure they do not face any issues while repayment. It will help them pay off the debt within the predetermined tenor without any financial strain.