Top 5 Important Facts Everyone Should Know about a Home Loan Agreement

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09 JUNE, 2021

Once your home loan application is approved by the lender, you would be required to sign a home loan agreement. Many borrowers tend to neglect the details mentioned in the lengthy document. However, it is imperative to understand the clauses as, once you sign the loan agreement, you are bound by the terms and conditions and are liable to meet the financial implications stated in it.

Below, we have enlisted the most important clauses that you should be aware of before signing the agreement.

Security cover clause
A home loan is a secured loan, wherein the property being purchased is kept as a collateral. However, lenders often add a clause that may require you to provide additional security if the property’s value decreases with time or in case of destruction of the property. Lenders add the additional security cover clause to ensure that the home loan is adequately covered for the entire tenure.
Prepayment and foreclosure clause
The prepayment facility allows the borrower to close the home loan before its specified tenure. Borrowers can either opt for part prepayment or full prepayment to clear debt sooner. Some lenders don’t offer the prepayment facility, while some levy penalties on prepayment. The prepayment clauses and charges are mentioned in the home loan agreement.
Amendment clause
It must be noted that no amendments can be made to a home loan agreement unless both parties (the borrower and the lender) agree and acknowledge the same. The amendment clause specifies the rights and obligations of each party in such circumstances.
Definition of ‘default’
If the home loan borrower fails to meet his/her repayment obligation, it is considered a default. However, some lenders expand the meaning of ‘default’ to include non-payment of EMI due to untimely death of the borrower, or divorce of the co-applicants, etc. Definition of default is a clause that specifies the situation under which borrowers would be considered to have defaulted and the implications of the same.
Notification clause
Some lenders add a notification clause that may require you to notify the lender about any change in your employment status, income levels, residential status, address etc. while servicing the home loan. The lender may also levy non-compliance penalties.

Ensure that you are well versed with the above-mentioned terms and conditions before signing the home loan agreement. It is necessary to be mindful of these specific clauses to avoid any disputes in the future. In case of any query, do not hesitate to seek the help of a financial advisor or a bank representative. This will help you make a well-informed decision while availing a home loan. Also, to make sure that your loan application isn’t rejected, check your home loan eligibility by using an online eligibility calculator.

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

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