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Important Clauses on Home Loan Agreement

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Important Clauses on Home Loan Agreement

A recent study suggests that 67 percent of Indians are open to taking home loans which requires them to understand the various clauses that are mentioned in the home loan agreement

A major section of homebuyers tends to opt for a home loan due to the availability of various schemes and offers that are offered by the financial institutions. The loan agreement that needs to be signed before the disbursal of the loan amount contains a list of important clauses that the borrower needs to know about so that they do not face any hassles while repaying it. The home loan agreement is a legal document that must be read properly as it outlines the borrower’s debt obligation. 

RealtyNXT lists the various important clauses that homebuyers must know about before signing the home loan agreement.

1. Amendments To The Agreement

A home loan agreement contains terms and conditions that both the borrower and the lender agrees to. However, clauses in the agreement that allow amendments in the agreement can be a breach of trust as these amendments can be against the home loan borrower. In case of any problems faced by the borrower while repaying the loan, the financial institution that lends the fund may make amendments in the agreement which can be highly dangerous to the borrower.

Thus, unless both the parties, which includes the borrower and the lender, agree to the clause that allows amendments in the agreement, a home loan agreement cannot be changed. Homeowners must make sure that they read such clauses carefully.

2. Understanding The Meaning Of ‘Default’

In most cases, the term ‘Default’ to the non-payment of the Equated Monthly Instalments or EMIs. However, there are also circumstances in which the lenders have used this term to imply to the death of the borrower or the divorce of the co-applicants. Therefore, homebuyers should make sure they clarify the meaning of the term ‘Default’ and its meaning is specified on the agreement before signing it. 

3. Fluctuating Interest Rates

There have been instances when the banks have altered the payable interest rates. This usually occurs when there is a clause in the agreement that allows fluctuating interest rates. Such a clause permits banks to increase the interest rate when the market rates increase. This makes fixed-rate loans into floating-rate loans. Therefore, the homebuyer must make sure to read such clauses and also ensure that the negotiated interest rates are mentioned clearly in the agreement.

4. Notification Clause

Another important clause that homebuyers must keep a check on is the notification clause. This clause specifies that in case the borrower gets a raise at work or moves to a different city, they need to notify about it to the bank. Non-compliance of this clause may require the borrower to pay penalties. Therefore, homebuyers need to read about the notification clause and the penalties related to it on the home loan agreement.

5. Third-Party Involvement

Such clauses allow banks to involve third parties in the agreement and thus borrowers may have to communicate with them instead of the bank or the financial institution that is lending them. Such a clause may cause various problems to the borrower as there will not be complete transparency in this entire process. Clauses that allow involvement of third parties must be avoided, if possible. 

ALSO READ: How Loan Against Property Helps Your Home Renovation

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