A home loan agreement is the document that governs your home loan terms and conditions, defines essential terms such as ‘default’, and outlines your debt obligation. Most often, in obtaining an in-principal approval for your home loan, you may consider signing this document a mere formality to complete before the funds are transferred to your account. However, once you have signed the home loan agreement, you are bound by the terms and conditions and are liable to meet all the financial implications mentioned in it. So, don’t just pay attention to your home loan interest rates, but read the entire agreement before signing on the dotted lines.
Take a look at 6 most important clauses of a home loan agreement.
1. Reset and Force Majeure clauses
Home loans are available on two different interest rates – fixed and floating rates. You may sign up for a home loan at a fixed interest rate without knowing the Reset or Force Majeure terms.
In such a situation, the lender can increase your interest rates or shift your fixed rate to a floating rate in a few years or due to exceptional circumstances. Therefore, to avoid surprises in the future, ensure that you read these clauses with care and know when your home loan interest rates are likely to change.
2. Prepayment and foreclosure clauses
Prepayment refers to the part payment of the principal amount of your home loan over and above your regular EMIs. Some lenders do not offer a prepayment option, while some may impose fines on prepayment or have certain conditions for it. Read the home loan agreement to understand what clauses your lender has included for prepayment and foreclosure so that you have the option to close your loan account earlier than planned when you have the funds to do so. One lender with zero part-prepayment and foreclosure terms is Bajaj Finserv, which offers home loans worth Rs. 5 Crore, or higher basis eligibility.
3. Additional security cover
Lenders often include clauses that may require you to provide additional security if your home, which is used as collateral, decreases in value over the tenor of the home loan. Be vigilant to guard against such clauses before signing the home loan agreement.
4. Amendments to the home loan agreement
The home loan terms and conditions are the basis on which two parties, namely you, the borrower, and the lender, agree to a set of terms for the repayment and disbursal of the loan. The borrower first signs the home loan agreement to ensure you are ready to abide by the terms as defined in the agreement. However, making any amends or provisioning amends to the terms and conditions is a breach of trust. No amendments can be made to a home loan agreement unless both parties agree and acknowledge the same. Therefore, you should seriously consider objecting to any clauses that state otherwise.
5. Definition of ‘default’
‘Default’ generally implies not making the payment of Equated Monthly Instalments or EMIs. However, some lenders expand the meaning of the term ‘default’ to include non-payment of EMI in the case of litigation, the borrower's death, or the co-applicants' divorce. Be sure to understand and discuss these terms with your lender to ensure you agree with what is finally specified.
6. Notification clause
Some lenders add clauses that require you to intimate the lender every time you get a raise at work or when you change jobs or move to another city. These clauses may not be relevant when you sign the home loan agreement. However, the agreement specifies what to do in case any of these instances occur during the tenor of the loan. Non-compliance penalties are also mentioned. Be aware of these points and address them accordingly.
Additional Read: Home Loan without down payment
Equipped with this knowledge of the home loan terms and condition, approach a lender of your choice. Check your eligibility for the loan using the home loan eligibility calculator and begin your journey as an informed home buyer.
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