Clauses In Home-Loan Agreement Buyers Must Know
A home-loan agreement is a key document, governing the terms and conditions of the entire transaction. As buyers are generally eager to get the loan disbursed as soon as possible, they often neglect the clauses of the agreement that sometimes put them in an odd situation at a later stage.
Let us look at some of the fundamental clauses that the borrower of the loan should be aware of under all circumstances.
Alterations in fixed rate of interest
Home loan is available in two variants i.e. fixed interest rate and floating interest rate. When a fixed-rate home loan is opted by borrowers, lenders put the clause of alteration in the interest rate. Alteration is the possibility only when there are certain changes made in the Reserve bank of India (RBI) norms. However, if there are no such announcements made by the authority, the lender has no right to revise the interest rates against borrowers’ will.
Prepayment refers to making an advance payment of the entire outstanding amount or a part of it by the borrower to decrease his liability. However, every lender does not treat prepayment with the same spirit. It is important that the borrower checks this clause and confirms that there are no implications of prepaying the loan amount. While most banks and financial institutions are not imposing any penalties on prepayment, as earlier, there may be certain other conditions that may discourage you from doing so. For instance, there could be a clause specifying the minimum amount eligible for prepayment.
Security cover clause
A loan is disbursed on the basis of the security provided by the borrower. But as the time passes, the asset or the property may lose its value due to certain reasons. In this case, the lender might ask the borrower to provide some additional security to fill the gap. The borrower should consider these types of clauses on a serious note before signing the document.
Amendments in the agreement
A loan agreement is the base considering which both the parties agree to the terms and conditions for the disbursal of the loan. It is duly signed by the borrower in the first place because he/she agrees to follow the terms and conditions defined in the agreement. Making amendments in the document means breaching that trust. It is purely an act of going against the purpose of making such agreements. The borrower should consider the clause a serious one and ask for clarifications. Amendments cannot be made in any agreement unless there is an acknowledgment from both the parties.
The borrower should check and confirm the definition of the “default” if any such term is mentioned in the agreement. Default generally means not making the payment of EMI (equated monthly installment), as mentioned by the lender in the document. But, the term can have other meanings as well, such as litigation on the borrower or death of the borrower or the situation when there are two applicants for the same loan and they decide to get divorced.
Besides these clauses, there can be other clauses such as selling or assigning the mortgaged asset to a third party without intimating the lender and following the specified transfer process.