Financial institutions consider several aspects, such as loan tenor, credit score, borrower’s age, property’s condition, etc., while fixing a commercial property loan interest rate. Individuals need to take necessary measures so that they can get a reduced borrowing rate. This can help them decrease their interest outgo along with the monthly instalments to a large extent.
Strategies to Get A Lower Commercial Property Loan Interest Rate
Here are the strategies individuals need to undertake to negotiate with their lenders and decrease their applicable property loan interest rate:
Opting for a lower LTV
Loan-to-value ratio determines the highest amount borrowers can get against the commercial property they mortgage. Generally, individuals can get an LTV of around 75% from the lending market in India. This means individuals can get up to Rs. 7.5 lakh against a mortgaged immovable asset with market price of Rs. 10 lakh.
To opt for a lower interest rate, borrowers need to request a credit amount lower than the permissible limit of the LTV. It reduces the risk factors of lenders as they can easily raise their lent capital by liquidating the asset if the borrower fails to repay the debt.
Choosing a lower tenor
Individuals can also go for a lower repayment period to get a reduced interest rate. In a shorter tenor, the lending institutions get their amount and the earnings, i.e. interest, quickly. In fact, since they get the amount in less time, their risk also becomes less. Therefore, borrowers can request their financial institutions for a lower interest rate on their loans against commercial property.
However, they need to know that in a shorter tenor, their instalment amount increases. They may face difficulty in repaying the credit. Therefore, they must measure whether the EMI is within their capability against a particular tenor. They can take the help of a loan EMI calculator to determine a suitable tenor that will help them repay their loan without the risk of default.
In this regard, they also need to know several other ways to reduce chances of defaulting on their loan against property.
Comparing different lenders
The commercial property loan interest rate is not the same across all the lending institutions in India. Individuals have to compare all the loan offers provided by several lenders before availing of the loan. This will help them choose a lending institution that charges reduced interest rate.
Taking a floating rate commercial property loan
Borrowers can also get a 1-2% reduced interest rate by taking a loan against property at a floating interest rate. It can save the borrowing cost significantly.
However, the applicable interest rate can fluctuate over time according to the market condition. If it decreases, individuals can save on their interest outgo. However, an increase in the base rate will lead them to pay more interest on their outstanding loan balance. In this regard, individuals need to have a proper insight into the difference between floating and fixed interest rates before opting for either of them. This will help them choose a type of borrowing rate.
Accepting pre-approved offers
Individuals can also get loans with a low-interest rate from pre-approved offers. Major financial institutions extend this personalised loan offers to their customers on financial products, including loans against property and home loans. Accepting these can also expedite the application process. They just have to mention their names and contact details to check their pre-approved offers.
Going for a loan balance transfer
Unlike other strategies, the loan balance transfer will let them decrease the borrowing rate while repaying their office mortgage loan.
Individuals can also opt for a balance transfer to reduce their applicable interest rate on their outstanding balance of commercial mortgage loans. This facility lets individuals move their loan accounts to a different lending institution offering lower a borrowing rate than their existing lender.
In this regard, individuals also need to know that the facility is profitable only when there is a sufficient outstanding interest component. Otherwise, they cannot reduce the amount of their interest outgo.
In conclusion, borrowers must make an effort to understand various aspects of LAP so that they get a reduced commercial property loan interest rate. This way, they can substantially cut down their borrowing cost and repay the dues comfortably.
A little effort before deciding on a mortgage loan can benefit greatly. The tips above are easy to follow when deciding on a mortgage loan. Hence, individuals can ensure that they would be able to make the most out of a mortgage loan against property in the easiest possible way.
Usually, lenders offer longer tenors on low LAP interest rates, while charging higher interest rate for short tenors. This might affect the overall interest rate and additional charges on the loan. So, it is becomes a imperative to estimate the monthly instalments and choose the loan tenor accordingly.