Today, lenders in India have the full authority to ask for additional security when the property prices fall. Even, when you are paying your EMI’s on time, there is a clause that demands a security cover in addition to your home loan amount. And, if you fail to pay that security, then lenders might declare you as a defaulter. We will try to explain this thing through an example-Shivam Singh- Noida based Designer opted for fixed home loan interest rates 5 years ago from a reputed lender. And, 3 years ago after the date of disbursement of the loan amount, Shivam received a letter stating that it was a time for renewal of his loan and the home loan interest rates had been increased by 0.5%. Well, it doesn’t mean that there is a change in the actual EMI, he paid, however; increase the loan tenure to accommodate the interest rate. On checking with the lender, he got to know that there was a clause in the home loan agreement, i.e. the fixed rate of interest was only for a period of 3 years and not for the entire loan tenure. These made Shivam recalculate and re-plan all his monthly budget and expenses because his fixed EMI’s were to rise.
So, what is a home loan agreement?
A home loan agreement is basically a contract between a borrower and the lender, i.e. (lenders and financial institutions) that regulates the terms of a loan. The home loan agreement comes into picture immediately after the lender appraises your credit and the property that you have finalized. Well, the article is designed to list 3 major things in a home loan agreement that you should be aware of-
Reset Clause on Fixed Home Loan Interest Rates: Lenders have introduced a reset clause in their fixed home loan interest rate so that they can increase the interest rate in case the market rates increases in the future. Eventually, this makes fixed home loan rate equivalent to a floating rate. It gives an escape to the lenders from the interest rate surges, but its disadvantage for the borrower who is not aware of such content in their home loan agreement. Typically the period varies from 2 to 5 years depending on the lender or financial institutions you borrow home loan. So, it is advisable that you read that clause in the agreement carefully.
Define Fault: In layman terms, a fault means non-payment of an EMI during the loan tenure. However, lenders might have a different version of this. Few of the lenders define fault as a case when the borrower is involved in any civil litigation or criminal offence or expires.
Security Cover: Well, this is a kind of clause which states that a lender is eligible to ask for an additional security when property prices fall. Accordingly, there is a particular clause which demands a security cover in addition to your home loan amount, and if you fail to provide the security, then you can be declared as a defaulter by the lender.
Hence, it is advisable to borrowers to check with the lenders or financial institutions regarding the details about such clauses. And, we hope that this information has been helpful to you! Happy Borrowing!