For almost all of us, the advertisements in newspapers, magazines and television breaks are forceful irritant which we cannot avoid while watching our favourite programmes on television. However, once a while, you may like them too. Advertisements that involve life insurances, stocks, mutual funds and home loan particularly are heart touching and are sound enough to attract your attention. The immense emotions, however, subside as soon as you hear a declaration in a fast-forward mode — investments and mutual funds are subject to market risk. Please read the offer document carefully before investing.
Well, if there has to be such an important clause then what is the point of showing all fruity about it? This is when you really need to think.
But, if you are a wise decision maker then there is a great lesson to be learnt from this, especially when you have plans to become a home buyer who is planning to apply for a loan to fund the purchase in near future — reading is the first key and any impatience or carelessness shown in this regard can cost you harsh in future. Someone who has invested in mutual funds will have a general idea about the current status of the market or someone who is investing in life insurance policies will not run in the same track of risk as you do being a home loan borrower.
The importance of reading is obvious from the fact that that the section of Frequently Asked Questions (FAQ) on the website of Reserve Bank of India has dedicated a great amount of writing to make the consumers aware of the facts and figures.
“The documentation of loan agreement consists of nearly 50 pages, and yes its language is complicated. If you think that everyone signs the same copy of the agreement with the Bank/ NBFCs and there is no need to read the papers then you are not taking an informed decision. If you think that somebody would have pointed this to me if there was any problem, maybe they did because everyone could not read or listen to it,” reads the ex plainer at the outset.
If you think that this is not inspiring enough for you to stress your eyes to read the extra-small fonts which only such official documents use in this day and age, there is another thought-provoking attempt. The written text clearly points out what works better for financial institutions, if you did not pay attention to reading.
“You may not receive the copy of your home loan agreement in advance so that you can read and understand before you sign the home loan agreement. Every single method may be used to delay before handing over a copy to the borrower in sufficient time.”
The team of ex-bankers suggests you to pay special attention to all the terms and conditions such as the interest reset clause, “which is included by few Banks/ NBFCs in their home loan agreements that allows them to change the interest rate in the future, even on borrowing as a fixed rate loan”. This clause clearly states that even if you borrow your home loan on a fixed rate of interest for the entire term, your lender may reset rates after certain intervals by giving it the name of “asset liability mismatch”. Another term to look out for is “exceptional circumstances”. Foreseeing only a one sided situation, your bank can change the lending rates.
If you did not read and understand the clauses carefully you may also realise in future that the term “default” on your Equated Monthly Installment (EMI) does not only mean the non-payment of installments. This could also relate to few ascertain situations that include divorce, death or your involvement in civil or criminal cases.
As per the clauses of the home loan agreement, your loan amount could also be disbursed directly to your developer’s account. Do you really think that it is a good idea? What will happen if the developer defaults on delivering the project and refuses to compensate you? He has already received your part of money.
There could be a clause included in the loan agreement that allows your bank to transfer your loan to a third party in future. We all spend a lot of time in researching about Banks/ NBFCs before you picked this one. Do you really want your lender to take a one sided call and transfer the loan amount to another party at a later stage?
There are few more things that are expected from the customer end. Do you know that the home loan agreement mandates you to inform your lender about your job change “well in advance” without defining the time frame?
There could be situations where “issuance of pre-approval letter should not be interpreted as a commitment by the bank to grant the loan amount and processing fees will be refunded if the home loan is not processed”.
We hope that all the above points will prove to be inspiring enough to put some of your effort into being a patient reader before you move to sign the documents of your home loan.