If you are planning to take a home loan, make sure that before signing the home loan agreement you dig deeper into the clauses mentioned there. When you sign a loan agreement, you agree to abide by the rules and regulations set by the lender. Hence, it’s important to know about every clause in detail to save yourself from committing any kind of mistake and Use Home Loan Eligibility calculator to check how eligible you are or availing a loan. Here is the list of clauses that you must know:
- Interest fluctuation clause: A home loan is available at two types of interest rates – floating rate and fixed interest rates. If your home loan is on a fixed interest rate, the interest will remain same throughout the loan tenure. In case of a fixed interest home loan, the interest rate may increase or decrease along with market fluctuations. In a floating interest rate, the borrower is required to sign a clause known as the interest fluctuation clause. If you sign this agreement, the lender will increase or decrease the interest rate as per the MCLR without seeking any approval from you. So, before you sign the agreement, make sure that when your bank will change the interest rate it should justify the MCLR of that time.
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- Amendment clause: By signing this clause, a borrower allows the lender to make changes in the loan agreement without the consent of the borrower. Hence, while signing the amendment clause, the borrower should be very cautious. The borrower must demand a written consent to alter any of the terms and conditions of the home loan. The amendments should not take place without an acknowledgment from both the parties.
- The repayment clause: It is one of the most important clauses that a borrower should know. The repayment of loan basically means the part-payment or prepayment of the home loan. While some of the banks offer prepayment or part-payment of the loan without any charges, some lenders demand a hefty amount in the name of part payment or pre-closure penalty. Thus, before signing the final agreement, be assured of the rules and regulations of the lender on the loan repayment. The early payment of a loan can save a considerable amount of the borrower.
- The definition of default: In general, the default of a loan means the nonpayment of loan EMIs. But as per a lender, there are many different situations when a borrower can turn to a defaulter. Some of the unusual scenarios when one can be considered a defaulter is a divorce (if the loan was a joint loan), involvement in any civil or criminal offense etc. A borrower sometimes considered a defaulter if he/she has defaulted on any other ongoing loan provided by the same bank or another bank.
- Reset and Force Majeure Clauses: This clause affects the home loan borrowers who have taken the home loan on a fixed interest rate. When a borrower opts for a fixed interest rate, it’s not necessary that the interest rate will not be changed till the end of the tenure. The Reset and Force Majeure clause of the home loan agreement says that the lender can shift your loan to a floating interest rate or increasing the interest rate due to exceptional circumstances. To avoid such shocks in the future, one must be aware of those facts prior to signing the loan agreement.
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So, if you have found your dream home, finalized the lender and your home loan is sanctioned, the only gap between you and your dream home is signing the loan agreement. Before signing the final deal, you must understand the home loan agreement very clearly as it is a very important document. Signing the loan agreement without knowing it well can turn to be one of the greatest mistakes of a home loan.
Additional Reading:- This Is How Repayment Process Of Home Loan Works