3 clauses not to ignore when signing a mortgage loan contract

Buying a home evokes a plethora of emotions, including a sense of satisfaction, in the mind of the buyer. Such emotions have the potential to overwhelm you at the time of purchase, which for most people involves taking out a home loan. Most buyers only consider basic factors such as the down payment, the equivalent monthly installment (EMI) amount they will have to pay, and the interest rate at which the loan is available.

It is also important to consider other factors. Remember that a home loan might be the biggest debt you will ever take on and pay off in the long run. You would be obligated to abide by the terms of the home loan agreement throughout the repayment term. Therefore, it is essential to be informed of the main provisions of your mortgage contract.

Here are some of the important clauses that are part of the mortgage contract:

Early repayment clause

One of the most important clauses concerns prepayment. Prepayment, which is used to repay the principal amount, helps you to repay the principal amount of your loan before the stipulated term of the loan.

“According to the new mandate of the Indian government, lenders cannot impose penalties for the repayment of home loans to anyone. However, various conditions are listed for borrowers, so it becomes important to go through the agreement to understand if there is a penalty and after what limit,” says Anoop Kumar Bhargava, CEO and Director of Empire Centrum, a property developer .

For example, some fixed rate home loans do not allow prepayment after a certain limit or until a certain period.

“Default” Definition Clause

“We consider a home loan to be a default on the EMIs of the loan due to unforeseen circumstances. However, the lender’s interpretation may be different,” says Pramod Kathuria, Founder and CEO of Easiloan, a digital home lending platform.

The lender may consider other factors in qualifying a borrower as defaulting. Some of the events for which a borrower is considered to be in default include the death of the borrower, divorce in the case of joint loans, and the borrowers’ involvement in civil or criminal proceedings. “So make sure you understand and negotiate those terms with your lender to make sure you’re okay with the final specifications,” says Kathuria.

Notice clause

According to the property experts, according to the notification clause, you must inform the lender of any substantial change affecting you and all other applicants for the home loan. “It may relate to employment status, residency status and income levels. And if you fail to notify the lender, it may be considered a default. These clauses may not be applicable when you sign the home loan agreement. However, the agreement outlines what to do if any of these events occur during the term of the loan. So be aware of that clause,” says Kathuria.

Others

Swapan Mukherjee, Group CFO of Gera Developments, suggests homebuyers keep an eye on whether the interest rate is fixed or floating as this can impact total interest expense.

“In the event of prepayment and foreclosure, a client should take note of their prepayment cost and its impact on them. In the event of default, a clause that incentivizes banks to enforce security is again something a customer should be very particular about,” he said.

He further noted that home loan agreements also have a modification clause that allows lenders to vary the agreements under certain circumstances. Buyers must ensure that the clause is drafted in such a way that it does not harm their interests.

Comments are closed.