A housing loan agreement is a vital legal document containing all the terms and conditions related to the loan. To avoid any confusion or financial repercussions, it is essential to understand the clauses in your loan agreement.

Here are some of the important clauses you should know about -

Default Clause:

Defaulting of a loan is widely understood as non-payment of EMIs on time. However, the lender’s definition of the clause can have many other stipulations for a borrower to be considered a defaulter. Some of the situations under which a borrower is regarded as a defaulter include.
  • Death of the borrower
  • Divorce of the borrower in case of joint loans
  • Involvement of the borrower in civil or criminal litigation
  • Borrower defaulting on another loan
  • Loss or change of job, and failure to inform the lender of the same

Security Cover Clause:

According to this clause, the borrower is required to provide adequate security for the entire tenure of the loan. Even if the borrower is paying the EMIs regularly, the lending institutions can ask for additional security in case the value of the property falls drastically or destruction of the property.

Setting Off Other Balances:

Whenever the borrower makes a payment, it is used for adjustment against any outstanding dues such as processing fees or penalties incurred due to late payments. The remaining amount will then be used for principal repayment or EMIs.

Amendments Clause:

This clause needs close attention because it can specify how changes to the current agreement can be made. Since the amendments can be unfavorable for you, it is advisable to request an explanation, if the terms of this clause are vague.

Notifications Clause:

As per this clause, the borrower is expected to inform the lender of any changes in the following
  • Residential Status
  • Address
  • Employment status
  • Income levels

Prepayment Clause:

Any amount that is paid over the EMI is adjusted against repayment of the principal amount. Such prepayment before the end of loan tenure can be done partially or in full. Lenders can levy charges for prepayment of a loan. Read this clause in the home loan agreement carefully to understand the cost of prepayment and how it can impact your finances.

Significance of Loan Agreement Clauses

Since the loan agreement carries prominent information concerning your loan, it is better to spend time and read it vigilantly. It is important to seek clarification from the lender in case of ambiguity because misunderstanding key clauses in the agreement can have serious financial ramifications.

Learn more about your home loan eligibility here.


The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

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