A home loan, whether it is Axis Bank or LRD loan, is one of the significant investments you make. Most people know about a home loan and how it can help them buy their dream home. Additionally, they also are aware of the home loan interest rates all banks 2022 offer. However, they are not fully aware of the clauses written in their loan agreements. There are certain clauses that can be adverse for them and can cause huge losses. Therefore, it is important that as a borrower, you read the fine print of the agreement and get clarity on all the points before you sign the home loan paperwork.
Here are four important clauses in a home loan agreement that you must know about.
Default clause
If you default, you can be penalised and charged a late payment fee. The word default can be very ambiguous in a home loan agreement. Though it simply means not paying the Equated Monthly Instalment (EMI) on time or missing out on EMIs, lenders could have an extension to this meaning. Your lender could also mean that you commit default if you do not pay EMI during litigation, the death of a borrower or when divorcing a co-applicant. It is best to know about the clause and ask the lender for clarity to avoid future hassles.
Amendment clause
There is an amendment clause in the home loan agreement which talks about the right to amend its content and conditions. You must carefully read the clause and ensure it is not detrimental to your interest. As per the agreement, an amendment cannot be made without the consent of both parties after you have signed the loan agreement. Therefore, ensure that it is clearly mentioned that the lender cannot change the loan agreement without your knowledge.
Reset clause
If you have opted for floating home loan interest rates, you can expect a change in the interest rates as per market changes and RBI’s policies. However, if you have a fixed interest rate, it should be constant throughout the tenure. However, many lenders plan to convert the fixed interest rate into floating interest rates after a few years into the tenure. This clause is typically mentioned in the home loan agreement. You must carefully look for it while reading the clauses. You must know if and when the lender proposes to change the interest rate.
Prepayment and foreclosure clause
When you pay your home loan before the end of the tenure, it is called prepayment or foreclosure. Typically, lenders charge a prepayment fee. However, this is only for fixed interest rate loans. As per RBI’s guidelines, lenders cannot charge you a prepayment fee if your home loan is on a floating interest rate. You must look for the prepayment clause in the agreement and ensure you are not wrongly charged.
Whether you are looking to buy a new home or refinance an existing home loan, it is crucial to be aware of the finer details of the agreement. While you might have a basic understanding of loan agreement content, you must ensure that you read each line carefully and know about all the clauses mentioned in it. Therefore, ensure to do a thorough read of all the fine details of the agreement when you apply for a home loan.
Here’s a little encouragement
Mentioned here are some important reasons why you must always settle for a home loan, may it be an LRD loan or loan from any other lender towards the end if you have various small loans. This is additional info you must be aware of.
If you have a home loan and other small loans like a car loan or personal loan, you may be wondering which one to pay off first. The first debt that is typically paid off is the one with the highest interest rate, followed by the next highest interest rate, and so on. However, many people still don’t realise that there can be benefits to settling your home loan after you have cleared off the other debts.
Reasons why you should always settle your home loan last
If you find yourself with many loans and finding it difficult to manage them all, it’s best to pay off your other loans first and your home loan last. Here’s why:
1. Tax benefits
The interest that you pay on your home loan is eligible for a deduction of up to Rs 2 lakhs per year under Section 24 of the Income Tax Act. Additionally, the principal amount repaid on a home loan is eligible for a deduction of up to Rs 1.5 lakhs per year under Section 80C of the Income Tax Act. As a result, home loans can help taxpayers to save money on their taxes.
2. Home loan interest rate is low
The home loan interest rate is generally lower than the interest rate on other loans such as personal loans or credit cards. This is because home loans are secured against property, and thus they carry less risk for lenders. Since personal loans and credit cards have high interest rates, experts advise settling these loans first. This makes repaying a home loan more affordable in the long run.
Moreover, while you plan to repay the other loans, you can check the EMIs through the home loan EMI calculator and plan your finances accordingly. A home loan calculator instantly discerns the EMI for you after you enter the necessary details. This helps keep track of your daily expenses and upcoming fixed expenditures.
3. Manage sudden financial crisis
Home loan repayment terms are usually much longer than those of other loans, which means you will have more time to repay it. This can be helpful if you experience financial difficulties at any point during the repayment period. There could be many unexpected expenses that may crop up suddenly, such as a medical emergency, plans for further studies, etc. In such situations, you could check your top-up home loan eligibility and apply for one with your lender to meet such expenses. Compared to other loans, getting a top-up loan is a convenient way to cover such unforeseen expenses.
These are some of the reasons why it makes sense to settle your home loan last if you have any other small loans. By doing so, you can save on interest payments on other debts, reduce your taxable income, and get a top-up loan if needed. Following the above-mentioned pointers could help you plan your finances in a better manner.
