Be watchful of major pitfalls in your Home Loan Agreement
Home Loans make it easier for you to move in as soon as possible without breaking your bank and disturbing the budget. ‘Look before you Leap’ is the strategical rule of thumb while shopping for the home loans and narrowing down on the best. A little unawareness in home loan agreement can bring horrible surprises later.
Most of us see the home loan agreement as a mere formality. Well! This can be the biggest pitfall. It is a contract twisted towards the lenders through different legal clauses presented in the fine quality paper. Let us help you to scout among these legal tactics thereby making the agreement easier for you to understand.
Outlined below are some of the clauses that are generally found side with the most Housing Finance companies (HFCs):
Reset Clause on Fixed Rates: Many home loan borrowers are nowadays seen to go with fixed rate loan. The home loan interest rates surge is the obvious reason behind their choice. In spite of being fixed interest rate, the later is not locked at a specific per cent for the entire tenure. This is what a reset clause introduced by banks in their home loan agreement says, which allows the lender to modify the interest rate in future.
The clause is applicable to fixed rate home loans as well. Don’t let yourself to be misled by the term ‘fixed rate’. For that reason, it is significantly important to go through the contents of your home loan agreement meticulously.
Force Majeure Clause: This clause allows the banks and HFCs to unfix the interest rate on loan and increase it under exceptional circumstances. And, what are those circumstances certainly difficult to differentiate. It will help you to prevent falling for semi fixed rate loans that are often advertised as fixed rate loans.
Defining a Fault: For a common man, the term ‘Fault’, as far as home loans are concerned, may not mean more than non payment of one or more loan installments. But, banks and HFCs do not consider the same meaning. The excerpts from the home loan agreements of two known banks will themselves shed light on the prevailing facts thereby making the picture clearer.
What does Citibank’s home loan agreement means by a ‘Fault’-
(i) “where the borrower, or where the loan has been provided to more than one borrower, any of the borrowers is divorced or dies (applicable in case of an individual)”
(ii) “if the borrower or any of the borrowers is/are involved in any civil litigation or criminal offence.”
Security cover at the time of Falling property rates: Despite of paying you Equated Monthly Installments (EMIs) on time, you may be asked to provide security over and above your home loan. This is generally what banks and HFCs do when properties witness a fall in rates.
The clause that gives such a power in hands of banks reads:
‘The bank may declare all sums outstanding under the home loan (including the principal, interest, charges, expenses) to become due and payable forthwith if the value of the property or any security (including guarantees) created or tendered by the borrower, in the sole discretion and decision of the bank, depreciates entitling the bank to call for further security and the borrower fails to give additional security.’
The home loan banks or HFCs can consider you a defaulter or raising an error if you do not give the additional security as demanded.
You should not take the things for granted. Always ask the banks to make you understand your agreement before you sign it. Also, ensure to bring these uneven and twisted clauses to the notice of your HFC and suggest the changes.
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