Important Clauses Of Home Loan Agreement

For most of us, buying a house and calling it home is a long-sought dream, one for which we alter our finances completely. Thus, it is quite natural to be swayed by emotions while applying for home loans , without paying attention to the agreement clauses. While it may not have backfired for many, it can cause substantial problems for those who later realize their disagreement with the clauses. Thus, it is always wise to understand these important clauses of a home loan agreement.

1. Default clause: Understand the definition of default in the loan payment. While for the buyer, it can imply a failure to pay EMI, but it could be more extensive for the lender such as the death of the borrower, criminal charges against the borrower, default on another loan, etc. Also, subsequent implications of default should be known.
2. Security clause: The borrower offers collateral which serves as security and adequately provides for the entire loan tenure. Generally, collateral is the property purchased. But in case the future value of the property is found insufficient to pay for the loan, the lender can demand additional security despite an impeccable EMI payment record.
3. Amendment clause: The home loan agreement will mention who, how and when can alterations be made to the existing contract and ensuing implications. Hence, one must read all terms and ask for clarifications all ambiguity.
4. Notification clause: The borrower must notify changes such as raised incomes, job switch, address alterations, domicile city changes, and others mentioned in the contract. These might seem irrelevant at initially but can attract penalties, if not followed in the specified mode and within the stipulated time frame.
5. Prepayment and foreclosure clause: For payment made over the regular EMIs, the amount can be adjusted with the outstanding principal, provided the agreement specifies the same. Mostly, lenders do not allow, charge penalties or imply strict conditions on loan prepayment . Also, in case the borrower wants an early closure of the loan, the agreement states conditions under which the said is allowed.
6. Setting-off balances: The payment made by the borrower will be prioritized to pay for any outstanding dues such as penalties, processing fees, etc. and then will be set off against the principal or EMIs.

It is also important to consider the interest rate of loans and implications of future fluctuations on the home loan agreement. In all, a borrower must take time and duly study all clauses before sealing the deal.

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.