The home buying process starts with the searching for a suitable home to buy than finding the right lender followed by submitting the pile of documents and ends with a lot of signatures on the number of pages of the home loan document. By the time we reach till the last step, we become much excited that most of the times home buyers sign the loan agreement without digging dip into the clauses mentioned there. Actually, a home loan agreement is a booklet which is full of technical terms and if the reader is not related to the relevant field, one may find it difficult to understand the meaning of each and every term mentioned here.
Though a great number of home buyers overlook the clauses of the loan document, it is indeed very important to understand it well. When you sign a loan agreement, you agree to abide by the rules and regulations set by the lender. Hence if it happens that in future any kind of confusion occurs between you and your lender, you will not have much to say in your support as you already have signed the loan agreement. Considering those situations, one must know each and every clause in a loan agreement before putting one’s the precious signature on it.
Important Clauses of a Home Loan Agreement
Interest Fluctuation Clause
One can avail a home loan in two types of interest rate. The first one is on a fixed interest rate and the second one is on the floating interest rate. If your loan is on a fixed interest rate, the interest rate will remain same throughout the loan tenure. Whereas, with a floating interest rate, your home loan interest rate may increase or decrease along with market fluctuation. In a floating interest rate, the borrower has to sign a clause which is called the Interest fluctuation clause. With the signature on this clause, the borrower permits the lender to increase or decrease the interest rate as per the MCLR without seeking any approval of the borrower. 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.
The Definition of Default
In general perception, the default of a loan means the non-payment of loan EMIs. But the definition of default can be boarded or shrunk as per the lender’s opinion. There are many different situations a when a borrower can turn to a defaulter. Some of the unusual scenarios when one can be considered defaulter are divorce (if the loan was a joint loan), involvement in any civil or criminal offence 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.
The amendment clause is one of the most important clauses of a home loan and is generally a clause which is against the borrower. By signing on this clause, the borrower permits the lender to make changes in the loan agreement without the consent of the borrower. If the lender amends the loan agreement in future then the loan agreement which the borrower signes at the time of home purchasing will be a worthless one. Hence, while signing the amendment clause, the borrower must 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 acknowledgement from both the parties.
The Repayment Clause
The repayment clause is the next significant clause of a home loan agreement that has to be taken care of. The repayment refers to the part payment and prepayment of the loan. Some of the banks offer a prepayment or part payment without any charges whereas some lenders demand a hefty amount in the name of part payment or pre-closure penalty. In a home loan agreement, all those clauses are mentioned clearly. Before you sign the repayment clause 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. So, if you plan for prepayment and your lender denies, it would be shocking news for you.
Reset and Force Majeure Clauses
This is the clause of a home loan which affects the home loan borrowers who have taken the loan on a fixed interest rate. When we opt for a fixed interest rate which is ever higher than the floating interest rate, we make our minds that the interest rate will not be changed till the end of the tenure. But 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 future, one must be aware of those facts prior to signing the loan agreement.
The Bottom Line
So if 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. As soon as you send the signed loan agreement to the lender, the lender will initiate the loan disbursal and hence you will get the occupancy of your dream home. It seems very simple and fast going process but in reality, the grass is not as greener as it looks from far. One 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.