Important clauses a borrower should read before signing a Home Loan Agreement.

By Abhay Harish Shah, Realty Quarter

The borrower is required to sign and execute the loan agreement before getting the payment of the home loan amount. The loan agreement sets out the terms and conditions of the bank’s credit facility and establishes a mortgage at home in the interest of the bank. Although the loan agreement is often seen by most home buyers as a mere formality, it is the most important legal document that contains the property buyer’s rights and liabilities.

A home loan agreement is a legal document regulating the terms of the loan and the establishment of a home mortgage. Before signing the contract, the buyer should check the important clauses which are as follows:

Important Clauses that a buyer needs to check in a Home Loan Agreement.

1) The clause allowing for loan agreement modifications: Such clauses are very dangerous and are entirely contrary to the borrower’s interests as, in case of difficulty with repaying the property’s loan/mortgage; the Bank is entitled to change the contract’s terms.

2) Clause permitting assignment to third parties: This clause is contrary to the spirit of trust as the borrower wanted to deal with the bank they bought the credit from, but ended up communicating with other third parties.

3) The clause concerning interest rate fluctuations: This clause enables the bank(s) to change the payable rate in line with the fluctuations in the base rates applicable.

Additional clauses in a Home loan agreement to check:

1) Security cover clause: The lender may invite the client to provide additional guarantees in order to protect the outstanding amount of the house loan.

2) Notification clause: Customer shall promptly notify the creditor of any changes in his job/business/profession, income levels, address changes or residential status.

3) Other balances: Any payment made by the customer would first be compensated or adjusted for other dues which may remain in force on that date.

4) Definition of default: This clause sets out the situation and the implications under which a client would be deemed as a defaulter.

The borrower should negotiate at the outset on the terms of the loan agreement, including the sanctioned amount and the rate of interest. A loan agreement is not merely a formality and home buyers should not rush to sign the documents.

Ramratthinam S (CEO of Muthoot Homefin, India) said, “Clauses have legal implications and need to be understood and adhered to, for the smooth completion of the loan.” Further, “After going through the loan agreement, if the homebuyer identifies that some clauses are not clear or appropriate, he/she should ask for clarification from the lender, before signing an agreement.”