Some significant home loan clauses

Increase in income of the people has boosted the loan segment of the banks especially the home loan segment as owning a house is becoming the first priority of the people. But most of us don’t have the knowledge of significant clauses of the home loan. Here we have tried to take few clauses about which we must have knowledge.

Interest rate movement:

Banks have included a clause of revising interest rates in the home loan agreements this has enable banks to even revise the fixed interest rate on loans. In floating interest rate bank already have power to change the interest rates. This can be done unilaterally, at the discretion of the bank.

Prepayment charge:

When bank sanction loan it also specify the repayment tenure of the loan. If a customer plans to repay loan before the due date some of the banks have incorporated foreclosure charges. In this the condition may range from taking prior permission of the bank, to a lock-in period during which the loan cannot be prepaid. Some banks levy prepayment penalty in case of the loan is repaid before the completion of tenure. But some banks don’t charge prepayment penalty if the loan is repaid out of one’s own funds.

Switchover charge:

As per RBI norms the home loan borrower can switchover to another bank if he finds that other bank is offering low interest rate in comparison to its existing lender. But in this case the banks have switchover charges. The existing bank will take fee from the borrower for switching over to other bank.

Disbursement date:

All the banks differ on the timing of disbursement of the loan. Some banks consider the date of the cheque as the disbursement date. Some of them consider the date of payment advice as the date of disbursement. According to some of the banks the date on which actually the funds were transferred is the date of disbursement. The difference in these dates has a significant affect on the interest element.

Job status of borrower:

Some banks have added a clause that when the job status of the borrower changes, the borrower must inform the lender about this.

Default penalty:

In case the borrower default in payment or delays EMI payment or the loan EMI cheque gets dishonor for this banks have default penalty clause.