Buyers must Pay Heed to These Clauses in Home Loan Agreement
Jun 12, 2018 Home Loan
A home loan agreement is an important document in the home loan process as it outlines the terms and conditions of the entire transaction. But while being eager to get the loan amount as early as possible, buyers often tend to ignore the clauses mentioned in the agreement, due to which at times they land up in an odd situation.
So here are some clauses in the home loan agreement that the buyers must be aware to handle all kinds of circumstances.
So here are some clauses in the home loan agreement that the buyers must be aware to handle all kinds of circumstances.
Amendments in the loan agreement
A loan agreement act as a base for both the parties that sketch the terms and conditions for the disbursal of the loan amount. The agreement is first signed by the borrower after agreeing on the terms and conditions that are defined in the agreement. Making any kind of changes or amendments in the document is considered to be breaching that trust. If there is any confusion in the amendments of the agreement, then the borrower should ask for clarifications. Amendments only can be made in an agreement when both the parties acknowledge the same.
Default clause
If there is a term ‘default’ mentioned in the agreement then the borrower should check about it. Default generally means not paying the EMI (equated monthly instalment), as mentioned in the document by the lender. But that’s not necessary, the term could have some other meanings as well, such as in case of death of the borrower, any legal action against the borrower or if there are two applicants and they are getting divorced. Apart from these clauses, there could be other clauses like selling or assigning the mortgaged asses to any third party without informing the lender.
Clause for prepayment
If the borrower makes advance payment (fully or partially) on the entire outstanding amount in order to decrease his or her liability that payment is called prepayment. However all lenders do not treat prepayment in the same way and that is why the borrowers should check the clauses related to the prepayment aspect. Most of the banks and financial institutions do not impose any penalties or charges on prepayment but there might be certain other conditions which might discourage the borrower of making the prepayment. Such as there might be a clause related to minimum amount eligible for prepayment.
Alterations in fixed rate of interest
Home loans are usually available in two variants – fixed interest rates and floating interest rates. When borrowers opt for fixed rate of interest then the lenders put the clause of alteration in the interest rate. Alteration is a possibility only when there are certain changes in the norms of Reserve bank of India (RBI). And if there are no such announcements, then the lender cannot make any changes against the will of the borrower.
Clause of security cover
Banks or lending institutions offer loans on the basis of the security as provided by the borrower. But with time the asset or the property might loos its value due to several reasons. In that case the lender might ask for some additional security. Thus the borrower needs to carefully study such clause before signing the document.
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