Are you planning to buy a home and are awaiting a loan agreement from the bank? We will provide you with some of the major aspects of a home loan. Just ensure you are clear about all the clauses that are specified in the loan agreement before you sign on any form that might bind you, willingly or unwillingly, into a contract with the bank. If you will be aware about all the clauses related to the loan agreement, you will be saved from any unpleasant situations later on. Before we go any further, let us find out what exactly is a Home Loan Agreement'. A Home Loan Agreement' is a contract between the borrower and the lender that can either be a bank or other financial institutions. The Home Loan Agreement legalizes the terms of a loan. After you have decided which property you want to buy and have contacted the bank from where you want to acquire loan, the concerned bank assesses your credit profile and decided whether you are eligible for a bank loan or not.
Understanding Important Aspects Of Home Loan Agreement
If you have decided to get into a loan agreement, then you need to get acquainted with the important aspects related to the agreement so as to avoid any problems later. Try and understand the legal language adequately and also make yourself aware of its inferences as it will play a major role in matters like repayment schedule, interest rate, etc. Do not regard a home loan agreement as a formality. You should consider it a prime document of the loan agreement, going as far to give it more importance than the actual property documents. The following clause will acquaint you with the essential clauses.
Fixed Rates with Reset Clause
Many banks have introduced the Reset Clause in their fixed rate so that they can increase their interest rate with increase in the market rates. This helps in making the fixed loan rates equal to floating loan rates. This is a boost for the banks but can prove to be a disadvantage for the borrower who is not generally aware about this aspect of the agreement. As now you are familiar with the term reset clause', it will save you from being at a losing end.
A fault generally occurs when a borrower does not pay an EMI during the loan tenure. Fault can also mean that the borrower has expired, the borrower has separated from a partner borrower or the borrower is involved in some civil or criminal proceeding.
Force Majeure Clause
There is a clause in your agreement named Force Majeure'. This clause will contain the information about the ability of the bank to increase or unfix the interest rate under exceptional circumstances.
A bank has full authority to demand additional security when the price of the property decreases. Even though you are a regular EMI payer, the bank can declare you a defaulter if you fail to pay this additional security cover.
Fixed Floating Rates
Fixed rates and floating rates of banks are one and the same. There is a fixed base rate for banks below which the banks cannot charge int erest. As the base rate increases, so does the floating rate. As we have taken you through the essential features of a Home Loan Agreement, you will have no difficulty in understanding the basic concepts related to a loan agreement. This knowledge would help you avoid any complexities later during the loan repayment.