During a home loan or any other loan process, the harassment of the process ends with the receiving of the final document known as the home loan agreement. This home-loan agreement is a key document that governs the terms and conditions of the entire transactions towards the complete home loan. As borrowers are generally eager to get the loan amount disbursed as soon as possible, they often ignore the clauses of the loan agreement that sometimes put them in a difficult situation at a later stage.
Let’s have a close look at some of the fundamental clauses that the loan borrower should be aware and discuss the workings under all circumstances.
Two variants are available in home loan i.e. fixed rate of interest and floating rate of interest. When a home loan is obtained by the borrowers on a fixed-rate the Banks/ NBFCs and other financial institutions put the clause of alteration in the rate of interest. However, the possibility of any alteration comes into picture only when there are certain changes made in the norms and policies by the Reserve bank of India (RBI). If there is no announcement made regarding any alterations or changes into the norms and policies by the authority the lender has no right to revise the interest rates against the borrowers’ choice.
With huge borrowing of the liability of home loan we work more harder in a smarter way to get rid of are liabilities as early as possible. This hard and smart working leads to many positive opportunities in our career aspects. These positive opportunities in turn become very beneficial for us in terms of promotions and year ending bonuses. These bonuses or the extra amount received can be used to make an extra payment towards the principal amount of our home loan. This payment is also known as prepayment or we can say that pre-payment refers to make an advance payment of the entire outstanding amount of the loan or a part of it to decrease the liability of the borrower. However, every lender does not treat pre-payment clause in the same manner. It becomes highly important for the borrower to check this clause and confirm with the lender that there are no implications on prepaying the loan amount. While most Banks/ NBFCs and other financial institutions are not imposing any penalties on the pre-payment, as earlier, there may be other terms and conditions that may discourage you from moving forward with a process. For example, there can be a clause of specifying the minimum amount eligible for pre-payment.
As we all know that a loan is disbursed on the basis of the cost of the collateral given by the borrower. But, due to the changes in the market situations the property given by the customer me lose its value due to ascertain reasons. Bank/ NBFC and the other financial institutions may ask the borrower to fill in the gaps by putting a new property as security with them. The Borrower should consider these clauses on a serious note and discuss with the lender before signing the loan document.
If there is any such term mentioned in the loan agreement then the borrower should check and confirm the definition of ‘the default’ with the lender. As per the financial terms, default generally means not paying the equal monthly instalments (EMI) on time as mentioned by the Bank/ NBFC in the final document. But, the term may have other meanings as well. For example, litigation or death of the borrower or there may be a situation when there are two or more applicants involved in the same loan and they decide to get separated.
A loan agreement is the base that connects the borrower and the lender and where both the parties mutually agree to the terms and conditions for the disbursal of the loan. It is duly signed in the first place by the borrower because the borrower agrees to follow the terms and conditions defined in the agreement. Making modifications altering the terms and conditions in the document means breaching that trust. It is purely an act of going against the mutual agreements. The borrower should consider the clauses on a serious note and ask for clarifications, if needed. Any alterations cannot be made in any agreement unless there is an acknowledgment from both the parties in a written note.
Besides the above clauses, there can be other clauses to be understood before signing the contract such as selling or assigning the mortgaged asset to a third party without informing the lender and following the specified transfer process of the loan and the property.