Purchasing a house evokes a plethora of emotions, including a sense of satisfaction, in the home buyer’s mind. Such emotions have the potential to overwhelm you at the time of purchase, which involves taking a home loan for most people. Most buyers just consider fundamental factors such as the down payment, how much equated monthly instalment (EMI) they will need to pay and the interest rate at which the loan is available.
It is also important to look at other factors. Remember that home loan would perhaps the largest debt you take on that you would be paying over the long term. You would be obligated to abide by the terms of the home loan agreement for the entire repayment duration. Therefore, it is essential to be informed of the key provisions in your home loan contract.
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Here are some of the important clauses that form part of the home loan agreement:
Prepayment Clause
One of the most important clauses is related to prepayment. Prepayment, which goes towards repaying the principal amount, helps you pay off your principal loan amount before the stipulated loan tenure.
“According to the new mandate by the Government of India, lenders cannot charge penalties for the repayment of home loans to anyone. However, various conditions are listed for borrowers, therefore, it becomes important to go through the agreement to understand if there is a penalty and after what limit," says Anoop Kumar Bhargava, CEO and director, Empire Centrum, a real estate developer.
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For instance, some fixed rate home loans do not allow prepayment after a certain limit or till a certain period.
'Default' Definition Clause
“We consider a home loan 'default' as failing to pay the loan EMIs due to unforeseen circumstances. However, the lender’s interpretation may be different,” says Pramod Kathuria, founder and CEO, Easiloan, a digital home loan platform.
The lender may consider other factors to label a borrower a defaulter. Some of the events when a borrower is considered a defaulter includes the borrower's death, divorce in the case of joint loans, and involvement of borrowers in civil or criminal proceedings. "So, make sure you understand and negotiate these terms with your lender to ensure you agree with the final specification," says Kathuria.
Notification Clause
According to real estate experts, as per the notification clause, you must notify the lender of any substantial changes affecting you and all other applicants of the home loan. "This can relate to employment status, residency status and income levels. And if you fail to notify the lender, it may be considered a default. These clauses may not be applicable when you sign the home loan agreement. However, the agreement outlines what to do if any of these events occur during the loan tenure. So, pay heed to this clause," says Kathuria.
Others
Swapan Mukherjee, group CFO, Gera Developments, suggests home buyers to keep an eye out for the nature of interest rate—fixed or floating—as that can impact the total interest outgo.
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“In case of prepayment and foreclosure, a customer should take note of what his cost of prepayment is and how it will impact him. In the event of defaults, a clause that triggers banks to enforce security is again something a customer should be very particular about," he said.
He further noted that home loan agreements also have an amendment clause that allows lenders to amend agreements under certain circumstances. Buyers need to ensure the clause is drafted in a manner that is not detrimental to their interests.
