While legal matters may be hard for a layperson to understand, they are still important for you to get a grasp of to make a proper decision about your choice in home loans. To help you with this, here are 10 important clauses in a home loan agreement you must know.
1. Interest Rate Clause
This clause enables the lender to alter the interest rate based on ups and downs in the Marginal Cost of funds-based Lending Rate, determined by the RBI. Always make sure that the interest rate is well protected.
2. Definition of Default
In this clause, the conditions and consequences of you becoming a defaulter are spelled out, which might happen when you fail to pay an EMI on time or become involved in criminal activities.
3. Force Majeure
With this kind of clause, you may start off with a fixed interest rate loan, but it might be liable to be changed under exceptional circumstances. By scrutinising closely, you may be able to avoid it.
4. Prepayment Clause
A prepayment clause refers to the part which can be paid apart from your regular EMIs. It is necessary to examine this clause if you have made a budget with reference to prepayment.
5. Notification Clause
In some agreements, this clause obligates you to notify the lender when you receive a promotion or pay raise or if you change jobs, and details what action you are to take in such a situation.
6. Third-Party Assignment Clause
This clause enables your loan to be transferred to another party without your permission and without notifying you. This can happen in the case of you defaulting on the loan, but it can also be done arbitrarily.
7. Security Cover Clause
In case the value of your property falls, you may be liable to pay an additional security amount against your outstanding home loan amount. It is advisable to go through this clause thoroughly, as it can have a major impact on your finances.
8. Amendment Clause
An amendment clause makes it possible for the terms of the agreement to be changed in case of difficulty paying the loan back, and these changes are almost always at the buyer’s disadvantage. It would always be wise for you to ask for written consent before any terms are changed.
9. Other Balances Clause
This clause states that any payment made by you will first be set off against other balances, like late payment fees or transaction fees, and the net amount left would go towards EMI payment.
10. Disbursement Clause
The payment of your loan may not always be disbursed directly to you and can often come to you through the builder. This clause is what sets these conditions for the housing loan disbursement.
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