Home Loan Agreement

  • The home loan agreement is a kind of contract between the borrower and the lender. The lender is the one who regulates the term of the loan. However, the borrower must be clear about
    • The clauses, and
    • As well as the various terms and conditions laid by the lender. The lender can be the Bank or Housing Finance Company.
  • The borrower must understand every single clause of the loan agreement.
  • He must be aware of various clauses before signing the loan agreement such as
    • How the lender will use the security cover for the loan
    • In which way your payments are utilized
    • Treatment of your loan
      • If assigned to the third party in case of default
    • Clause of prepayment
    • Notify the lender of
      • Any change in Address
      • Employment
      • Income, etc.
    • Amendment of agreement condition.
  • There are various documents required for the home loan agreement.

Important clauses in Home Loan Agreement

There are several clauses in the home loan agreement that form the framework of the transaction. The clauses are important because it defines the terms and condition of lending and borrowing the money. To smooth completion of the loan, it is mandatory to understand each clause of the agreement. Parties should not forget that the home loan agreement has a legal implication.

Security Cover Clause

  • This clause says that the security provided for the loan should be adequately covered for the tenure.
  • The property for which the loan is taken is usually the security for the loan.
  • The lender has the right to call upon the borrower to provide additional security to safeguard the outstanding loan amount.

Setting off other balances

  • Payment made by the customer firstly will set-off or adjusted against outstanding dues till that date.
  • Interest can be put on the late payment.
  • It includes processing, transaction fees, etc.
  • Payment applies to EMI or principal amount.

Assignment to the third party

  • In case of default in payment or for any other reason the lender may assign the home loan to a third party.
  • The obligation and the terms will remain the same and transferred to the identified third party.
  • For such an assignment, the lender need not take the prior consent of the borrower.

Prepayment Clause

  • This clause contains how payment can be made and the financial implications of repayment.
  • This clause enables the borrower to make a prepayment of the home loan entire amount of due interest before the tenure is finished.
  • The customer can adjust against the outstanding principal at the time of payment.

Notification Clause

  • Under this clause, the customer has to provide the information to the lender regarding ay change such as
    • Change in income
    • Change in address
    • Employment, etc.

Amendment Clause

  • Any amendment in the home loan agreement comes under this clause.
  • It specifies
    • Who can make amendments
    • How the amendments can take place
    • When to make amendments
    • Rights and obligations of the parties at the time of amendments.

The borrower can prefer a guide to the home loan before getting into any agreement.