During a financial emergency, people often consider redeeming their investments or taking out a loan. However, redeeming investments can hinder long-term financial goals. While a loan can be a better option, choosing the right type can be difficult with several options available.
Banks and NBFCs heavily market unsecured loans such as personal and business loans, leading many to overlook other options. Additionally, unsecured loans are quick and easy, so people may blindly opt for them, unaware of better alternatives.
A Property Mortgage Loan may be a good option if you need a large amount quickly and want better loan terms. This loan allows you to utilise the value of your property, making it a more beneficial option than unsecured loans.
Applying for a mortgage can be intimidating, especially if it’s your first time. The good news is that you can position yourself to succeed in securing the best property loan available by following these six strategies.
1. Improve Your Credit Score
Regarding the credit score required for a loan against property, you must have a credit score of 750 or above to be eligible for a loan against property with lower interest rates.
You can easily check your credit/CIBIL score online for free by visiting the official CIBIL website.
There are many ways to improve one’s credit score. Firstly, by making all debt payments on time and in full. Another heavily weighted factor is the amount one owes compared to the entire amount of credit extended to one, so keep your debt as low as possible.
Finally, avoid major credit purchases or new credit lines before applying for a mortgage. It can not only negatively impact your credit history but can also welcome another line of hard inquiries.
2. Make Sure You Have a Steady Income Source
To apply for a property mortgage loan, you need to have a stable source of income, which enhances your profile score. Leaving your job or taking up a low-paying job can lead to the rejection of your loan application. A stable job builds trust in the lender’s mind about your ability to repay the loan.
3. Calculate Your Debt-To-Income Ratio
The debt-to-income (DTI) ratio calculates borrowers’ capacity to repay debt based on their gross monthly income. DTI is the ratio of all monthly debt payments to gross monthly income expressed as a percentage. Banks and financial institutions use DTI to assess a borrower’s ability to make monthly payments and repay the total debt amount. Ideally, your overall DTI should remain below 36 per cent.
Lenders find lower DTI ratios more attractive, indicating that borrowers can make new loan payments without financial strain. A high DTI means more of your income is dedicated to existing debt payments, making it difficult to afford the additional debt.
4. Choose Among the Types of Mortgages
Deciding between a fixed or variable interest rate is crucial when choosing a loan. Fixed-rate loans guarantee a stable mortgage payment throughout the loan term. On the other hand, variable rates start lower but can reset multiple times during the loan term, based on the current market. It means your loan against property interest rate could increase, making it difficult to afford mortgage payments.
Furthermore, mortgage loans are segregated based on the nature of the contract between the lender and the borrower regarding the terms and clauses of the mortgage loan. Borrowers can choose among Simple, Usufructuary, Subprime and English Mortgages.
5. Consider Mortgage Loan Terms
Your next step should be to consider how the length of your loan will impact the cost. While a shorter loan of 15 or 20 years can help you save on interest charges, it can lead to higher monthly payments and limit cash flow. On the other hand, a longer loan term of 30 years or more means lower monthly payments and the possibility for you to borrow more, but it also results in more interest paid over time.
6. Shop Around for the Best Mortgage Rates
When searching for the best loan against property interest rate, do extensive research to narrow down the best options. It is advisable to avoid accepting the first rate offered and instead shop around by talking to multiple lenders in person and exploring options online.
It will allow you to compare different offers and find the most favorable terms, including fees, closing costs, and private mortgage insurance premiums.
A mortgage can be crucial in buying a house or overcoming a financial emergency. With the strategies mentioned above, take your time to evaluate your options thoroughly. After all, it is a long-term commitment that could lock you in an expensive loan for many years.