In the excitement of buying/registering a home, you often overlook various clauses in the home loan agreement. You do not realize how crucial some of the clauses in the home loan agreement may be. These relate to various factors of the home loan ranging from interest rates to repayment schedules.
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A home loan agreement is a contract between the borrower and the lender/bank. A home loan agreement regulates the terms and conditions of a home loan.
Immediately after the bank appraises your credit worthiness and the property, and prior to disbursal of the loan amount, a borrower is required to sign a home loan agreement.
Reading a home loan agreement is not just a formality. If you think so, you are likely to ignore some important points and pay the price. To avoid falling into a trap, be careful and pay attention to the following clauses. A home loan agreement mentions the rights and liabilities of the home buyer. Therefore, have a proper look and search for these in a loan agreement:
Prior to the disbursal of the home loan, the borrower is required to sign and the home loan agreement gets executed.
Amendment clauses are almost always, against the borrower. Therefore, you must exercise caution when reading this clause. According to this clause, the bank has the power to alter the terms of the agreement, in case you find it difficult to repay the home loan. Make sure to demand a written consent to alter any of the terms and conditions of the home loan.
This clause gives the bank the power to alter the interest rates in line with the base rate or MCLR fluctuations. If the MCLR increases, this clause gives the bank the power to increase your home loan interest rates. Therefore, ensure that the interest rate terms are negotiated and adequately safeguarded in the loan agreement.
This clause may empower the lender to assign your loan to a third party, without your approval. The lender may assign your home loan to a third party in case of default or for their own convenience. The terms of the loan would remain the same and be transferred to the third party. You will then have to deal with the third party and not the bank.
The lender may ask you to bring up additional security against the outstanding home loan amount. He may do so if the value of the house falls so that he doesn’t face difficulty in case of a default.
This clause gives the bank the power to set-off or adjust against your payments, any other dues outstanding, as on that date.
This clause requires you to promptly notify the lender of any change in your employment or business or profession, income level, change in residence and so on. The clause might mention that you notify such changes to the lender, within a reasonable period of time. Be sure to ask the lender to define the terms and what he means by ‘reasonable time’.
This clause clearly mentions what is considered a default. It also gives you the implications of a default. Be sure to ask the lender to define the term ‘default’. If you have any doubts, call up the loan officer and get them cleared.
Clauses in the loan agreements are not meant to be overlooked. These need to be read with caution. Clauses have legal implications and hence, need to be strictly adhered. If you do not understand any of the clauses, be sure to get them clarified from the bank/lender. You can also hire the services of a qualified lawyer, to represent you during negotiations with the bank. Be very careful, read and understand the clauses before you sign on that dotted line.
In case of fixed rate home loans, this clause allows a bank to convert it into a floating rate home loan or increase the fixed interest rate under exceptional circumstances. Ask the lender to differentiate between ‘exceptional circumstances' and normal circumstances.
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