Owning a cozy, comfortable, and well-lit home is every Indian’s dream. It is in an effort to achieve this dream that much effort is made, much of the time is spent. Not many in the country, though, can make an outright purchase. Home loans have become the go-to solution for homebuyers. These days banks and leading financial institutions are vying with each other to attract home buyers. These loans can cover a considerable part of the property’s cost and this is repaid (with interest) by the borrower in monthly instalments. The bank or the lender retains the property as security, i.e. if the borrower fails to repay the loan the lender may recover the amount through the sale of the property. Before you sign the dotted line and take on a home loan to buy a beautiful 2 BHK flat on Ghobunder Road or elsewhere, however, there are a few essential clauses that you may want to check in your contract with the bank or money lending institution.
Interest rates – The first thing you may check when applying for a home loan is the interest rate. This will tell you what your financial burden will be (over and above the principal to be repaid) each month. Some home loan agreements, however, may include a clause regarding fluctuating interest rates. This allows the banks to alter the rate of interest charged if market rates increase in the future. This could potentially become a disadvantage. As a borrower, it is important to be able to forecast if a fixed or a fluctuating interest rate would be more advantageous to you.
Other payments and balances – As a potential loan seeker you will expect to repay only the principal and the interest. Most home loan providers, however, levy a processing fee, transaction fee, and other charges on the home loan. The clause pertaining to this must be read and understood before you take the loan.
Assignment to third parties – As a borrower you expect to deal with the bank or the lending company directly. An assignment to third party clause, however, may allow the lender to reassign the loan to a third party without informing you. This may happen either in case of a default or due to the lender’s needs. In these cases, the terms of the loan remain unaltered but the loan dues are transferred to a third party.
Defining default – Before you rush in to obtain loans and invest in a 2 BHK flat in Thane or elsewhere it is important that you have clarity on the definition of default according to your loan agreement. Some banks or lenders may define default as failure to pay the EMI while others may include the death of the borrower and other conditions. Some banks may provide the borrower a “grace period” to repay the default amount. It is important to know the exact terms of the contract before you sign it.
Amendments to the agreement –The clause that may definitely be disadvantageous to you as a borrower is the one that allows the bank or the lender to make amendments to the agreement at any time, even midway through the repayment term. If this is a clause included in your home loan agreement, you may want to renegotiate and ask to be informed or your consent sought before any changes are made to the agreement and its terms.