A home loan agreement is a legal document that outlines the terms and conditions of your easy home loan plan. The document contains important details and clauses about the home loan interest rate, equated monthly instalments (EMIs), payment defaults, penalties, etc. However, many borrowers overlook the impact of hidden/vague clauses in their home loan agreement.
Moreover, once the agreement is signed, you are obliged to meet the specified terms and conditions without fail, or you can face serious legal and financial ramifications.
To avoid such circumstances, be wary of the following clauses in your home loan agreement:
Security Clover Clause
When you apply for home loan, lenders demand adequate security to cover for the entire loan tenure. As per the security clover clause, lenders can ask for additional security in case your property (that often serves as collateral for the housing loan) falls in value or finds the collateral insufficient, during the home loan tenure.
Prepayment Clause
Any amount paid over and above the stipulated home loan EMI during the loan tenure is considered a prepayment. Lenders often levy a fine on the prepayment of home loans done before the housing loan tenure is over; while some lenders have special conditions specified for the prepayments that are defined under this clause.
Definition of Default
A ‘default’ generally implies that the borrower has failed to pay the EMI on time. However, different lenders have different interpretations of ‘default’. This clause in the home loan agreement defines what the lender considers or categorises as default by including specific situations of non-payments like the death of the borrower, loss of a job, etc.
Always use a home loan EMI calculator before you apply for a housing loan to avoid defaulting on your EMI payments.
Force Majeure Clause
For borrowers with fixed home loan interest rates, this is an important clause. Under this condition, the lender reserves the right to unfix the fixed home loan interest rate owing to extraordinary economic circumstances. Home loan rates can either be increased or changed to a floating rate of interest.
Notification Clause
As per this clause, a borrower is obligated to inform the lender of any change in the following:
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Employment status
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Profession
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Income levels
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Business, etc.
Notification clause also specifies penalties for non-compliance. However, you can reach out to the lender if you find the home loan agreement terms objectionable.
Amendment Clause
Under this clause, lenders reserve the right to modify the terms and conditions specified in the home loan agreement, without informing or consenting with the borrower. Making amends to the agreement is considered a breach of trust. Be watchful of this clause to avoid unfavourable terms and conditions during the housing loan tenure.
Always read the home loan agreement word-for-word to avoid any legal disputes in the future. If the specified clauses are vague, clarify the doubts with your lender before signing the dotted line.
Likewise, before you apply for a home loan online or offline, check your home loan eligibility using a home loan calculator tool online to secure a favourable loan plan with the lender of your choice.
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