It is very important for every home loan borrower to be clear about all the conditions and clauses of the loan agreement. Skipping this vital task can result in severe problems, not just during the loan tenure but beyond that as well. Five of the most important points that one must check in the loan agreement are discussed in this post.
The housing finance companies in India have made the whole process of taking a home loan easier than it used to be a few years ago. But as a borrower, it is still essential to be as cautious as possible. Every borrower should clearly understand all the conditions and clauses of the home loan agreement before signing the agreement.
Skipping this vital step can result in a host of severe troubles in future. Five of the most important points that one must check in the home loan agreement are mentioned below-
- Clause for Fluctuating Interest
As per this clause, the loan provider can alter the interest rate as per the fluctuations in their base rate without requiring any approval from the borrower. When it comes to long-term loans like home loans, the smallest change in the interest rate can significantly affect the total amount a borrower repays to the lender.
Read this clause thoroughly to understand what it means and how it can impact your EMI.
- How the Lender defines the term ‘default’?
While most borrowers believe that ‘default’ means non-payment of EMIs, the definition of the term varies between lenders. As per some home loan agreements, a default is when the borrower expires or if it is a joint loan, a default is when the borrower takes a divorce. Moreover, some lenders refer to default as a condition when a borrower is involved in a criminal offence or civil litigation.
When reading the loan agreement, know how your lender defined default.
- Security cover if Property Rates Fall
As per this clause, the lender gets the right to demand additional security if the property rates start to fall. Even if a borrower pays the EMIs religiously, failure to provide this additional security when asked by the lender can turn him/her into a defaulter in the eyes of the lender. The same is true even if the price of the security kept by the lender starts depreciating.
This clause generally also mentions that the lender also has the right to declare all the outstanding sums of the home loan payable immediately if the property rate or value of the security falls.
- Amendment Clause
The amendment clause is one of the trickiest clauses of the home loan agreement. A lot of legal experts agree that the clause has a significant loophole with the help of which the lender can make any changes to the loan agreement without taking any approval from the borrower.
If there are any amendment clauses in the loan agreement, it is imperative for the borrower to read them in detail.
- Prepayment Clause
Prepayment is an excellent way to reduce the total amount repaid to the bank as it not only helps in reducing the principal amount but also the interest. Be it full prepayment or part prepayment, all the details regarding prepayment are mentioned under this clause.
When you apply for a home loan, you should know details like when you prepay a loan, the prepayment penalty applicable, the minimum lock-in period, etc. All these points are mentioned under this clause.
While home loan agreements can be lengthy, it is for your safety that you go through all of it to avoid any inconvenience in future. In case of any difficulties in understanding a clause, get in touch with the loan provider or hire legal help for the same.
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