7 Important Home Loan Agreement Clauses for Every Borrower
When you are looking to buy your own home, it has serious financial implications. Due to rising real estate prices, most residential properties have become relatively expensive. This means that your personal savings might not suffice to help you get your dream home. In such a situation your best companion could be a Home Loan. Home Loans are secured loans that are extended by all financial institutions in India, wherein the purchase property is hypothecated with the financial institution. You can continue to live in the said property peacefully as long as you are repaying your Home Loan EMIs (Equated Monthly Instalments) on time. The maximum tenure for Home Loans is up to30 years,and rate of interest currently starts at 8.35%.
When you have identified a suitable residential property and have arranged for the margin money, you must Apply for a Home Loan at Current Interest Rates. If you fulfil their eligibility criteria, then your application would be approved in 10-15 days, after the lender has completed his due diligence regarding the status of the property. After your application has been approved, you would be asked to sign the Home Loan agreement.
What is a Home Loan Agreement?
The Home Loan agreement is a term used to describe a set of documents which must be signed by you when you are availing a Home Loan. It includes all the terms and conditions governing the loan including interest rates, processing charges, pre-payment clause, penalties, restrictions, and so on. It is a legally binding document,and once it has been signed, you must make every effort to honour the agreement with your full dedication. But there are specific clauses in a Home Loan agreement that you must be awareof.
Important Home Loan Clauses
Before you pick up your pen to sign the dotted line, there are 7 crucial Home Loan clauses that you must read, understand and comprehend to safeguard your interests.
1. Retention of Security Cover
Depending on the LTV (Loan to Value) ratio of the lender, you are eligible to get up to 90% of the purchase price of the property as a loan amount. This margin is kept by the lender to safeguard its interest in case of severe fluctuation in property prices, due to which the total property value has become less than the loan amount. In such a situation the risk of the lender increases and they may invoke the protection clause of the Home Loan agreement, wherein it may ask you to provide additional security to safeguard its interests.
2. Alteration in Fixed Rates of Interest
Current Home Loan interest rates are of two types – fixed and floating. If you are opting for a fixed interest rate, then the lender might have put in a clause pertaining to alteration in the interest rate. But the lender can use this option only when there has been some policy level change or notification from the Reserve Bank of India (RBI). If there has been no such notification, the lender has no right to alter the interest rate. If your lender tries to do so, you can raise a complaint.
3. Prepayment of Loan Amount
You apply for a Home Loan because you do not have sufficient money to make an outright purchase. But it may happen so in future that your finances improve significantly, and you have spare money that you want to use to repay your Home Loan at earliest. You must read the loan agreement carefully for the pre-payment clause as some lenders can levy charges against pre-payment. Nowadays most lenders do not impose any charges on housing loan pre-payment, but you must read the agreement,and if there is an issue regarding the prepayment clause, you must bring it up.
4. Notification Clause
As per the notification clause, you must inform the lender regarding any significant changes pertaining to you and all other applicants on the Home Loan. This can relate to employment status, residency status and income levels. If you fail to inform the same to the lender, it can be constituted as a default. But you must seek clarification from the lender regarding the period in which such information has to be passed on.
5. Default Clause
Default does not only mean a default in making monthly payments on time, but it could also refer to particular situations such as death, divorce or litigation. You must seek clarifications from your lender regarding this clause as any ambiguity can bother you later on.
6. Amendment Clause
This clause provides the lender with the right to make amendments to the loan agreement from time to time. This clause also contains information regarding the situations under which this clause may be invoked as well as your rights and responsibilities as a borrower.
7. Assignment of the Loan to Third Party
It is also known as securitisation clause which secures empowers the lender to transfer your loan to a third party in case of a merger or acquisition. It can also be done if the loan has gone bad and the lender sells your loan to a third party. If the loan is assigned to a third party, you must then make any further payment to the new entity only.
These are seven most essential clauses related to a Home Loan agreement that you must read, understand and comprehend in order to safeguard your interests.
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