While applying for home loan from any financial institutions, there are some legal steps which a loan borrower has to follow. Signing of loan agreement is one of the important procedures among all.
A home loan agreement is a kind of deed that comprises of home loan terms and conditions, description of essential terminologies like ‘Default’ and information on your loan EMI repayment responsibility. A loan borrower has to sign this paper while obtaining an in-principal approval of the home loan after which the bank transfers home loan to the respective account.
However, once the money is transferred, you are bound to follow the rules and regulations written in the loan agreement. Failure in following the norms can also lead to multiple implications.
So, while signing a home loan agreement, it is mandatory to read all the terms and conditions carefully. Here’s a look at some of the important clause that must be known to every loan borrower:
Clause-1: Reset and Force Majeure
As we know that a home loan comes with two types of interest rates-one is fixed and another is floating. While most of the loan borrowers prefer a fixed home loan, a loan agreement has other clause for the same. A reset and force majeure clause, in this context refers to situation where a lender has the power to shift your home loan to floating rate of interest or increase the rate of interest under exceptional circumstances. So, read this clause carefully before signing home loan agreement.
Clause 2: Prepayment and foreclosure Charges
Another clause which must be carefully read by the loan borrower is about the prepayment and foreclosure charges. There are some banks that don’t ask for any fee related to prepayment or foreclosure. But, many banks has special clause for it where they charge extra fees in this regards. So, read this clause in the loan agreement carefully and get details about the charges beforehand so as to save yourself from any hassle in later stage.
Clause 3: Understanding ‘Default’
In the loan sector, a ‘Default’ means that a person is not able to repay the loan EMIs on monthly basis. However, some banks or lenders also include individuals in their default list such as dead borrower or divorced-co-applicant. Carefully read all these terms and discuss this with your lender accordingly.
Clause 4: Security Cover
Most of the banks include the clause of security cover in the home loan agreement which means providing additional security as collateral for the home. Be attentive in this case before signing the agreement.
Clause 5: Notifying any change in Information
Many banks often include this clause in their loan agreement. It means that you have to provide every small information to the bank like shifting from one city to another or any hike in salary. Also, if you fail to do so, penalties can also be fined on the borrower. Remain alert on this issue and address it to lender in case of any changes.
So, get yourself equipped with all these clauses beforehand and approach a perfect lender accordingly.