Understanding the Important Clauses in a Loan Agreement
Post by : favouritehomes
In India, buying a home is synonymous with taking a home loan. Most homebuyers consider this to be a mere formality to get through, but there is much more to a home loan than what meets the eye. Since the terms and conditions are crafted by the loan bank, it’s their interests that will prevail in the document. It is thus essential that you go through the lengthy loan home_loans_ in _indiaagreement details with a magnifier before signing on the dotted line.
To prevent disputes, here’s a closer look at some of the clauses in a home loan and what they actually mean.
Contrary to what you think, ‘default’ clause doesn’t mean not paying your EMIs; instead, it can refer to the expiry of the borrower, divorce from a co-borrower or even that you haven’t repaid a loan from some other bank!
‘Interest rates Fluctuation’ clause
– Since 2010, the loaner banks don’t need to inform their borrowers if they are changing the interest rates. This clause gives the bank the freedom to change interest rates based on their base rate fluctuations.
‘Force Majeure’ clause
This clause gives the bank the right to change fixed rates of interest on the loan in case there are extraordinary circumstances or unforeseen economic conditions. Hence, don’t be complacent about your fixed interest rate as it can become ‘unfixed’ under certain conditions.
Most banks have their own disbursement rules. The borrower seldom comes in contact with the loan money directly. The loan is usually disbursed directly to the builder or in some cases transferred directly to the receiving bank.
By going for the fixed interest rate option, don’t be too sure that it will always remain the same. This is because the bank reserves the right to reset the interest rate at a higher level after a period of 2-5 years in case the interest rates are showing a rising trend. Read this clause carefully as the fixed interest rate is usually for a limited period only.
‘Third-party debt collection’ clause
In the unfortunate case of default on repayment of a loan, the lending bank reserves the right to contact the third party of their choice for repayment. Most borrowers are unaware of this clause and find it disturbing when contacted by such third parties for repayment of dues.
This tricky clause actually gives the bank the rights to make changes in any clause in the loan agreement document without seeking approval from the borrower. This is a big loophole that needs to be scrutinized carefully.
Finally, do read the loan agreement document carefully!