Home Loan Agreement- Important clauses to know!
Buying a house is still considered a big achievement in a person’s life as it entails several processes before one could heave a sigh of relief. Right from searching for a perfect house that meets one’s requirements to complete all the financial transactions to buy it, a homebuyer needs to put in a lot of research to ensure he/she takes the right decision.
Why is a home loan agreement important?
Availing a home loan is an indispensable part of the home buying process where the buyers are ought to focus on many factors like down payment, EMI and the interest rate. However, the buyers often tend to neglect the home loan agreement, a legal document that contains some important financial implications that you need to bind upon. Therefore, apart from paying attention to home loan interest rates, pay heed to the entire agreement before you sign it.
Here are some significant clauses of the home loan agreement that every homebuyer should know/be aware of them.
The ‘Default’ Definition
In a general notion, ‘default’ of a house loan means the failure of paying loan EMIs (Equated Monthly Instalments) due to some unfavorable situations. However, lenders can expand or shrink this interpretation under certain conditions when a borrower can turn into a defaulter. Non-payment of EMI in case of death, divorce (in case of a joint loan), or if the borrower is involved in any civil/criminal offense are some of the scenarios for a borrower couldn’t repay the loan. A borrower also falls under the defaulter list if he/she has doesn’t pay any ongoing loan provided by the same or the other.
This is a clause where the lender may require home buyers to provide additional security for the house, which has been used as collateral already, loses its market value. The value of the house may decrease due to various reasons such as property destruction, fall in prices or any other causes over the home loan tenure. The lenders do this to safeguard the outstanding loan amount.
The clause on ‘Interest Rates’
Interest rates on home loans are available in two types: fixed and floating interest rates. If the loan is availed on thefixed interest rate, there will be no change in the interest rate and it remains the same throughout tenure. However, if a home loan is availed on the floating interest rate, there is a chance that the interest rate may decrease or increase with the fluctuation in the market. If a borrower signs loan on this floating interest rate, the lender is being permitted to increase or decrease the interest rate as per MCLR even without the borrowers’ approval. Therefore, it’s the buyer’s responsibility to read through properly before signing the agreement to avoid any issues in the future.
Amendment clause generally refers to any type of changes made in the home loan agreement. This is one of the most significant clauses which buyer should be well aware of since it allows the lender to do any amendments without any consent of the borrower. It is the buyer’s accountability to demand written consent in case if there is any alteration that needs to be done in the terms and conditions of a home loan. Any amendments in home loan should take place only with the acceptance of both the parties.
This clause specifies the borrower to notify of any changes with regards to business, profession, employment, change in address, and income levels to the lender. This will help the borrowers to avoid any disagreements during the tenure of a home loan.
Having been equipped with this information of some important clauses in the home loan agreement, here are a couple of other clauses that a borrower should be familiar with.
Clauses related to prepayment & foreclosure: This clause enables the borrower to prepay and close the loan amount earlier than mentioned in the home loan agreement when there is sufficient fund with the buyer.
Setting off other balances & assignment to third parties: This deals with the payment if any made by the borrower would be set off or adjusted against the outstanding dues that he/she has as on that date. Also, the lenders having an option of assigning a home loan to third parties if there is any default or for their business profitability is stipulated in these clauses.
To sum up, a home loan agreement is an important legal document that the buyers should be conversant with in order to avoid any issue in the future. Finalizing your dream home and home loan do not only matters, signing the home loan agreement after a clear understanding of the rights and liabilities is equally significant.
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