For most of us, purchasing a house is nothing but a dream come true situation. During that time, one tends to feel overwhelmed which can cloud their rational mind when they are taking a home loan. It is true that factors such as down payment, EMI, and interest rate are important but there are other factors that a home loan borrower needs to know of. After all, a home loan of 30 Lakh Home Loan EMI is perhaps the largest debt you take so getting into the specifics of a home loan agreement is very important.
One such detail is the clauses one should know of. One must understand that a home loan agreement is a legally binding document between a borrower and the lender and if both the parties sign it, they must abide by it. Hence, a potential home loan borrower should know the important clauses and know how to read between the lines of the home loan agreement before availing of the 35 Lakh Home Loan EMI considering it won’t be easy to back out
Let’s discuss the important clauses of a home loan agreement
Prepayment clause: Prepayment, which contributes to principal repayment, enables you to pay off your principal loan balance earlier than the agreed-upon loan term. It is true that lenders are not permitted to impose fines on borrowers for making home loan repayments of 30 Lakh Home Loan EMI under the new law issued by the Government of India but there is other nitty-gritty that borrowers are subjected to. Hence, it is crucial to read the agreement carefully to determine whether there is a penalty and after what time frame.
2. Clause Defining: “Default states that home loan “default” as the inability to make 30 Lakh Home Loan EMI payments because of unavoidable circumstances. The lender’s view can be different though. For them to label a borrower has defaulted, the lender may take other variables into account. Death of the borrower, divorce in the case of joint loans, and engagement of borrowers in legal disputes are some instances where a borrower is deemed to have defaulted. Make sure you comprehend these terms and discuss them with your lender to ensure that you understand the final specification.
3. Notification Clause: Real estate experts note that in accordance with the notification clause, you are required to inform the lender of any significant changes that will affect you and all other applicants for the house loan. This may have to do with employment status, place of residence, and income levels and as per the agreement, it may be seen as a default if you don’t let the lender know. When you sign the home loan agreement for 35 Lakh Home Loan EMI, certain provisions might not be applicable.
4. LTV Margin (Security clause): Based on the borrower’s income, credit rating, age, and ability to repay the loan, the bank approves home loans up to a specific percentage of the value of the property which in other terms is known as the loan to value. As per this clause, if the value of the underlying property decreases throughout the loan time, which results in increasing the LTV ratio, the lender may ask the borrower to deposit the necessary cash to restore the original LTV ratio.
5. Interest fluctuation clause: This clause allows the bank to set the interest rate in accordance with changes to its base rate. If you are looking for a long-term loan tenure, the bank may adjust the interest rate whenever they change their base rate without your permission. So, it is crucial to study this clause’s terms and conditions. Due to their lack of understanding of these terms, many borrowers who took out loans before 2010, when the prime lending rate concept was popular, were unaware of this potential loophole.
6. Force Majeure Clause: In some loan agreements, the term “force majeure clause” is sometimes referred to as “money market condition clause.” In accordance with this, the bank retains the right to change the loan’s fixed interest rates in the event of unanticipated changes in the economy or other extraordinary circumstances. Hence, it is crucial to read this paragraph carefully if you believe that a fixed-rate loan would remain set forever in order to prevent disagreements with the bank in the future.
7. Other Balances Set off Clause: Any repayment made by the borrower is first applied to any other debts that are owed, such as late payment penalties, transaction fees, and other fees; only after these debts have been fully recovered is the amount applied to the 30 Lakh Home Loan EMI payment or repayment of the main loan amount.
Third-Party Repayment Collection Clause: Financial institutions like banks, home finance companies, or NBFCs reserve the right to share your personal information with third parties of their choosing in order to collect on the loan of 30 Lakh Home Loan EMI if the borrower defaults on repayment. Many debtors are unaware of the presence of this condition, and therefore become irritated when calls from such third parties requesting them to pay their debts arrive.
Apart from the aforementioned clauses, there is one such clause one should know. Home loan contracts also feature an amendment clause that permits lenders to alter terms under specific conditions. A home loan agreement has several clauses that serve as the foundation for the deal between the lender and the borrower. A borrower is bound by the home loan agreement when they sign the 35 Lakh Home Loan EMI hence, be cautious to read the terms of the agreement before taking out a home loan. Ask your lender for clarifications if necessary, or seek out expert help. There are only some provisions of the home loan agreement that are subject to negotiation (like tenure, interest rate etc).