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Home Loan Agreement Clauses You Must Know

Home Loan Clauses Decoded

Highlights

  • Read & understand home loan clauses to be able to put forth your words strongly in case you find any violation to the same in the future
  • Understand clauses pertaining to interest fluctuation, repayment, reset, amendment, etc

Before taking a home loan, you shall read the loan agreement carefully to steer clear of the uncertainties that may prevail otherwise. If you find anything hard to understand in the clause, you can ask the lender to make it clear to you. You should do that before putting the signatures on the agreement paper. In case you sign without understanding the clauses, you may find it hard to put forth your words to the lender in case any confusion takes place after signing the agreement. Don’t let your ignorance hurt you, spare some time with us to check out the home loan agreement clauses that you must know and understand.

Interest Fluctuation Clause

Home loans are basically offered on a fixed and floating interest rate. With the fixed rate of interest, the interest rate remains the same over the course of a loan. Whereas, in a floating loan, the rate of interest changes as per the prevailing market conditions. When you apply for a floating rate loan, the lender would ask you to sign the interest fluctuation clause. As soon as you sign the clause, you give the concerned lender the privilege to price loans at rates according to the prevailing market conditions from time to time.

Repayment Clause

It’s an important clause to read and understand. The clause would cover the part payment and prepayment of the loan. Well, most banks or housing finance companies won’t charge you on the part-payment and prepayment in the case of a floating home loan. The fixed rate loan would, however, come with a charge calculated at a certain percentage of the principal outstanding plus applicable taxes. Some lenders may state in the clause that prepayment on a floating loan comes free only if it is made from own sources and not via a balance transfer, which people often opt for in a long-term home loan.

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Reset and Force Majeure Clause

Floating home loans come with different pricing benchmarks such as the Marginal Cost of Lending Rate (MCLR). Now, the MCLR is subject to a review by banks every month. So, the MCLR can change periodically but won’t be factored into your interest rate until the reset date arrives. The reset clause would clearly state the period by which the loan will be repriced. Usually, most banks reprice the loan on a yearly basis according to the prevailing MCLR.

On the other hand, the fixed rate loan can come with a clause that can give lenders the liberty to change it into a floating type or increase the rate of interest under unprecedented events.

Amendment Clause

It’s also a clause that lenders put into a home loan agreement. The moment you sign the agreement, the clause would entitle the concerned lender to make changes in terms and conditions without your consent. This can prove counterproductive. So, it’s imperative to look for a system wherein the lender can change the terms and conditions only if you give consent to the same.

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  • Home Loan Interest Rates September 2020
    Axis Bank7.75% - 8.55%
    Bank of Baroda7.00% - 8.40%
    Citibank8.20%
    HDFC6.95% - 8.00%
    ICICI Bank6.95% - 8.05%
    Indiabulls Housing Finance Limited8.80% - 11.05%
    Kotak Bank7.20% - 9.30%
    LIC Housing6.90% - 7.90%
    Piramal Capital & Housing Finance9.00% - 9.10%
    PNB Housing Finance8.60% - 9.45%
    Reliance Home Finance8.75% - 14.00%
    State Bank of India/SBI6.95% - 7.60%
    Tata Capital9.20% - 9.35%