Home Loan Agreement: Important Clauses That Borrowers Must be Aware of

Posted in Housing Articles By Sajhyadri Chattopadhyay-
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A home loan agreement is the blueprint of your homeownership journey; it is essentially a pact between you and the lender. What makes this document crucial is that it covers a variety of aspects. From the consequences of defaulting to the interest payable, it's all there along with any specific terms of the loan. Hence, it’s vital to pore over this document with a fine-tooth comb. Remember, once you sign this agreement and accept the loan terms, you are committed to paying EMIs and accepting other expenses and demands for years to come.

Crucial Clauses to Consider Before Signing

 

1. Defining 'Default': 

In the world of home loans, the term 'default' is one that always makes us sit up alert! A loan default usually results from multiple missed EMIs, where lenders might ultimately foreclose on the property provided as collateral for the home loan. This is why you must grasp how your lender defines ‘default’. 

A borrower might be unable to pay EMIs due to ongoing legal causes, they may be suffering from health issues, etc. What happens to the loan if the borrower passes away? Understanding this definition clearly can help you navigate potential challenges and take the reins in avoiding a default scenario. 

Related: What Happens When You are Unable to Pay Your Home Loan

2. Prepayment and Foreclosure:

Imagine you have some extra money and want to clear your home loan dues faster. You decide to prepay a certain portion of the borrowed sum, thus lightening your EMI load or reducing your tenure. But are you sure this doesn’t come with the burden of prepayment charges? These can be easily missed unless you know to look for it in the agreement. 

The same applies to home loan foreclosure. If you plan to settle your entire home loan in one go, make sure that your agreement stipulates this possibility. Know the charges and terms of prepayment and foreclosure as per the written norms to make an informed financial decision.

Also Read: Should You Foreclose Your Home Loan?

3. Notification Clause: 

Some loan agreements necessitate that you keep your lender informed about changes in your income, job, residential location, etc. Neglecting to do so could lead to penalties. This notification clause acts as a safeguard for lenders to manage and mitigate risk. Scrutinize these clauses to safeguard your interests. 

If you feel something doesn’t sit right, negotiate with your lender or seek professional guidance. If such clauses are present in your home loan agreement, study them carefully and decide whether you want to have them removed or not. 

4. Fixed or Floating Interest Rate: 

Home loan interest rates wield a significant influence over your EMIs. While fixed interest rates are more stable due to consistent payments, opting for a floating rate, is more uncertain. Your EMIs will ride the waves of market dynamics and vary as per the RBI's benchmark lending rates. 

Remember that lenders can only alter fixed interest rates if the RBI alters any related norms. Sometimes agreements could have clauses hidden in the fine print permitting changes under specific conditions. Know your interest rate type and what scenarios could alter it to stay ahead.

To learn more also check out: Here's What You Should Know about Repo-linked Home Loans

5. Handling Unpredictable Circumstances: 

If life can be described in one word, it’s ‘uncertain’. Think back to the pandemic, or other natural disasters. Moreover, there could be a sudden political upheaval, or national emergency. This brings in a criterion of ‘Force Majeure’ or even ‘Act of God’. 

Dive deep into these provisions of your home loan agreement carefully to make sure any such clause is legally binding. Make sure your lender specifies the difference between normal and exceptional circumstances and weed out any room for ambiguity. 

6. Home Loan Balance Transfer: 

Transferring your home loan from your current lender to another offering more favourable terms and conditions can always help you save money. Scrutinize your loan agreement to find out if your lender has any clause preventing this. Try to get it removed as this is a highly important and useful feature. 

For example, on Bajaj Markets you can choose the Home Loan Balance Transfer facility and access lower interest rates starting from just 8.50% p.a., with a top-up facility of up to ₹5 Lakhs. Hence, transferring your home loan balance can be a smart move to reduce your interest payouts. 

 

A comprehensive understanding of these clauses can shield you from unforeseen financial burdens and fines. Moreover, these clauses can reveal a lender's reliability, empowering you to make a safe choice for your housing finance needs. For simplified financial solutions, apply for a home loan on Bajaj Markets and get a high amount of up to ₹15 Crores at attractive interest rates, flexible repayment options, and more!  

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