Home Loan Agreement: Significant Clauses a Borrower Must Be Aware Of
When you are taking a housing loan, you must sign a loan agreement with the lender. You must read the contract thoroughly and understand the terms and conditions. Read on to know more about the importance clauses you must be aware of in the home loan agreement.
The enthusiasm about owning a house may distract many buyers from paying close attention to the loan agreement. It is essential that you understand the critical points in the agreement and their consequences. Here are some of the important clauses in a housing loan agreement that you should be aware of.
Amendments to the Agreement Clause
When you sign an agreement with the lender, it becomes legally binding and stipulates that you adhere to the terms and conditions stated. The amendments clause can give the lender the right to make changes to certain aspects of the agreement without your explicit permission. Be sure to investigate the document and ask for clarification if you see this clause in your agreement.
Meaning of the Default Clause
When you fail to pay EMIs, you are generally considered to have defaulted on the loan payment. Some lenders can have a different definition of what constitutes defaulting of a loan. Non-payment of EMI due to the death of the borrower or a borrower’s divorce can be considered as default by few institutions. The borrower having ongoing litigation, or non-payment of other taxes can also be considered as a default. Make sure you are clear about what the default clause means before signing the agreement.
Security Cover Clause
When an institution grants you a housing loan, the lenders takes the house as a collateral against the amount use it as a security. In the event of depreciation in the value of your property, destruction or other factors, the borrower may be required to provide additional protection. Failure to do so can be considered as default. It needs to be understood that the lender can expect you to pay your outstanding loan amount and other charges if you are unable to give additional security cover.
Assignment Clause
The agreement between you and the lender is essentially a confirmation that both parties will abide by the terms and conditions of the agreement. Assignment clause gives the lender the power to assign your loan to third parties. This is an unnecessary hassle having to deal with third parties because your pact was with the lender. If you see the clause in your agreement, raise a red flag, and talk with your lender about it before signing.
Prepayment Clause
Paying off the loan earlier than the intended loan tenure can incur prepayment charges from the lenders. Read the agreement carefully to understand the possibility of such charges. The benefit of repaying part of your outstanding loan amount can be assessed only based on the prepayment charges. Therefore, get a better understanding of what this clause entails to avoid disappointments.
Interest Rates Clause
Fixed rate and floating rate are the two interest types of loans taken to buy a house. In floating rate loans, the lender is entitled to increase or decrease your interest rate over the loan tenure depending on market fluctuations. It is better to communicate with the lender to learn about how your interest rates will be affected.
The legal implications of signing an agreement for a loan to buy a house needs to be emphasised. Being vigilant in reading the various clauses in the contract will spare you trouble and confusion in the future.