One of the most important documents associated with a home loan is a home loan agreement. This vital document consists of all important terms and conditions related to home loans. It is essential to understand the clauses mentioned in the home loan agreement to keep any financial ramifications at bay. Let us find out the five most crucial home loan agreement clauses –
- Reset Clause
The reset clause or the home loan interest rate clause allows the lender to review the interest rate after a particular number of years and reset it in accordance with the prevailing market rates. In simple terms, the home loan lender can increase or decrease the interest rates according to the current market rates.
- Prepayment and Foreclosure Clauses
Prepayment of a home loan refers to the advance repayment of it over and above the regular monthly EMIs. Prepayment of home loans can be partial or full. However, some lenders do not provide the prepayment option; some impose certain prepayment or foreclosure charges while some others require that you pay a certain number of EMIs after which only you can apply for prepayment.
Carefully go through your lender’s prepayment or foreclosure clause to know whether or not you will be able to foreclose your home loan and under what conditions.
- Default Clause
When a customer fails to pay their home loan EMIs (principal loan amount + home loan interest) on time, such delay in payments or non-payment is understood as a default. However, individual lenders may have several other stipulations for a default – death of the borrower, divorce of the borrower in case of joint home loans, the involvement of the borrower in criminal activities, loss or change of job (and failure to notify the lender of the same), etc.
The Default clause lays out the situations under which a default is applicable and the implications of such defaults.
If you are unable to pay EMIs, you can opt for refinancing to a lender offering lower home loan interest rates.
- Security Cover Clause
The Security Cover clause of a home loan agreement stipulates that the home loan should be sufficiently covered by the security provided for it. This security is the property that is being purchased using the home loan. It may be possible that the value of the property depreciates at any point owing to a fall in market prices, deterioration of the apartment’s living conditions, etc. During such times, the lender will contact the customer asking for additional security to safeguard the outstanding home loan amount.
- Notification Clause
As per the Notification Clause of a home loan agreement, a customer is obliged to notify or inform the lender in case there is a change in his employment status/business, residential address, residential status (resident to NRI or the other way round), etc. The clause also mentions about the timeframe within which such information is to be conveyed as well as the mode of notification.
Going through all clauses in a home loan agreement is imperative and so is using home loan calculators such as eligibility calculator and home loan EMI calculator. After all, smart planning is what is needed for making one of life’s biggest investments.