There is more to home loans than just interest rates, down payment and EMIs. So the moment you decide to go in for a home loan, take the time to scrutinize the 50 page or more loan application for legal minefields. Ideally, it would be best if you can get in touch with a legal associate who specializes in property finance affairs. Although banks do have a loan officer assigned to you, chances are that the person is trained to play his or her cards well. Moreover, the legalese language used is covert in nature, and it confounds innocent buyers.
Here are some pointers on the fine print that everyone should watch out for:
1. THE “FIXED RATE” LOAN RESET CLAUSE: Banks have a reset clause in their fixed rate home loan agreement. It allows them to change the interest rate after some years. So if you are under the impression that you made a wonderful move by choosing a fixed loan, think again. No bank is going to charge you the same interest for the entire tenure.
Take the case of Rajan Kumar. He opted for a fixed-rate home loan from a bank. Merely three years into the loan, he receives information from the bank that they are increasing the interest rate by 0.5%. No amount of arguing with the bank helped, because the loan officer simply pointed to a clause in the agreement that said the fixed rate was only for three years, not for the entire tenure.
Therefore, while considering a home loan, it’d be a wise move to give equal weightage to flexible loans as well.
2. FORCE MAJEURE CLAUSE: Banks include a provision that allows them to alter interest rates “suitably when certain circumstances are beyond their control.” What constitutes the “certain circumstances”, no one knows. Therefore, you will be in trouble if you are under the impression—after reading point #1 above—that loan resets take place once in a while. Banks advertise a semi-fixed rate loan as a fixed rate loan, so do not fall prey.
3. LOAN REPAYMENT DEFAULT CLAUSE: Banks include clauses about their collection agents and mention the charter or standard operating procedure for collecting pending dues. Remember that banks or home finance companies (HFCs) cannot take coercive action against the borrower by taking possession of the property. However, HFCs can file a suit for defaults on loans above Rs 10 lakh under the Sarfaesi Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act). For lower amounts, HFCs can file a suit in a civil court.
4. SECURITY COVER CLAUSE: Although you may be paying your EMIs on time, you will be considered a defaulter if you don’t provide security over and above the home mortgage when property prices crash. Check if your agreement has wordings like this: “the bank may consider and declare all sums outstanding under the home loan (including the principal, interest, charges, expenses) to become due and payable forthwith if the value of the property or any security (including guarantees) created or tendered by the borrower depreciates, thereby entitling the bank to call for further security and the borrower fails to give additional security.”
5. DISCOUNT CLAUSE ON BUILDERS: Documents have a penalty clause for delayed handing over. The clause stipulates that if the completion of the house is delayed, the developer will give a discount to the buyer. Many banks and HFCs are not taking a tough stand with the builder on delayed delivery.
6. CROSS DEFAULT CLAUSE: Under this clause, you are considered as a defaulter on your home loan for the most disheartening reason: if you have made any kind of default in any other loan or facility with the same HFC or bank.
7. AMENDMENT CLAUSE: Desist from signing the home loan agreement if it has similar wording: “At its sole discretion, the bank shall alter the terms of this agreement by sending written intimation to the borrower by courier. Any amendment proposed by the borrower shall be valid only if there is a written agreement signed by both the parties.”
If you come across unfair clauses in your agreement with HFCs, send a mail to NHB at email@example.com or through its website www.nhb.org.in. In the case of banks, write to RBI at firstname.lastname@example.org or go through its website www.rbi.org.in.