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Home Loan Agreement

Home Loan Agreement:

A home loan agreement is a document that defines the terms and conditions i.e. it outlines the debt obligation that is required to be paid once a home loan is availed. Usually, to obtain an in-principal approval for a home loan, the agreement is signed as a formality before the funds are transferred. After the completion of such formalities, the person becomes bound by the terms and conditions specified therein. A home loan should be taken only after careful financial planning by the borrower ensuring that EMI payments will not upset his ways and means position leading to the possibility of default.

home loan agreement

There are a few points that are to be kept in mind while opting for a home loan agreement:

  • INTEREST RATE

There are two different types of interest rates; namely the fixed and the floating rates. The borrower should ensure that the terms and conditions are fixed and can be only changed by having a written acknowledgment from him.

  • ESSENTIAL CLAUSES

Making part-payments of the principal amount for the home loan along with regular EMIs, different conditions are depending upon the bank. There exist clauses that define foreclosure i.e. having the option of closing the loan account earlier than planned according to the availability of the funds.

  • SECURITY COVER CLAUSE

Lenders often require additional security (called collateral security) to safeguard the outstanding home loan amount.

  • AMENDMENTS

The terms and conditions are made when the borrower and the lender both agree to the repayment and disbursal of the loan. Making any changes or provisioning amendments is a breach. No changes are allowed unless both the parties agree and acknowledge the same.

  • SPECIFIED TERMS

Sometimes the dealers create confusion to expand the meaning of the ‘default’ as non-payment of EMI in the case of litigation or the death of the borrower or the divorce of the co-applicants, whereas the meaning of ‘default’ is nonpayment of monthly EMIs

  • NOTIFICATION CLAUSE

In some cases, the lenders add a clause which states that the borrower needs to intimate the lender if he/she seeks any raise at work or if he/she has changed job or moved to another city, however it has not much relevancy in the home loan agreement. Sometimes non-compliance penalties are also mentioned.

 

  • SELECTING EMIS

The estimated monthly EMIs are defined according to the borrower. There are a variety of EMI plans that are catered by every bank, depending upon the down payment made at the time of purchasing a house. More amount paid as down payment results in less amount of EMI.

  • REPAYMENT TENURE

The time taken to pay the sanctioned loan is referred to as repayment tenure. The repayment and the EMIs are considered as a whole. Opting for a longer tenure results in a smaller EMI amount, but it increases the interest rate that is required to be paid, probably resulting in paying double or triple the loan amount. Therefore, it is advisable to choose a short repayment tenure with higher EMIs so that the interest rate is at a low amount.

  • CIBIL SCORE

To get a loan from any bank, an individual is required to maintain his/her credit score. Having a good CIBIL score, one can have better interest rates on their home loan, providing a benefit of quicker loan processing and disbursal of the same. Moreover, a low CIBIL can entail denial of a loan as well.

  • GOING THROUGH THE DOCUMENTS

Checking out the document and having a comprehensive knowledge of the loan application is essential. It is necessary to read the documents before signing the loan papers.

  • CLARIFIED LANGUAGE

Sometimes the loan agreement is not made in layman’s language and individuals do find it complex to understand. In such cases, the borrower can take a separate letter stating that he has gone through the contents of the loan documents and has understood the terms and conditions comprised in the agreement. The letter needs to be witnessed by another person. If he/she is illiterate and is applying their thumb impression on the loan documents, the bank official present at the time of execution of documents should give a certificate on a separate paper that the contents have been fully explained to the borrower in his/ her native language. The certificate needs to be witnessed by independent persons.

  • BLIND PERSON

If the borrower is blind, he/she needs to obtain such a certificate from a lawyer or notary public in whose presence the borrower executes documents.

  • SECURITY TO BE PROVIDED

Security for a housing loan is considered as the first mortgage of the property, through depositing of title deeds (equitable mortgage) or via a registered mortgage deed (Registered Mortgage). Sometimes banks require additional collateral security, or they insist on margin/ down payment to be maintained. Collateral security could be considered as life insurance policies, guarantees from solvent guarantors, pledge of shares/ securities and investments, etc. that are acceptable to the bank

  • DO NOT BORROW MONEY MORE THAN YOUR CAPACITY

One should avail loan within his/her capacity. It is advised to borrow only as much as can be conveniently repaid.

 

NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION (NCDRC) has recently passed a decision in favor of homebuyers and has stated the importance of refund and interest. In recent times a case was presented before the justice R.K. Agarwal (president) and Dr. S.M. Kantikar (member) where there was a delay of 9 years in delivery possession of the apartment, the builder was directed to refund the amount paid by the buyer, to him along with interest thereon.

An instant complaint was filed under section 21 of the Consumer Protection Act, 1986 against Wave Mega City Centre (P) Limited. Due to the catchy advertisements and assurances provided by the developer, people applied for the allotment. Allotment agreements were executed. According to the agreement made, the possession of the apartment was meant to be delivered within 48 months from the date of execution of the agreement by July 2016 with a grace period of 6 months.

The problem arose when the developer was being questioned, by buyers, regarding the date of possession, but they were misled by the developer every time. The commission stated that the buyer cannot wait further because there was already a delay for almost 9 years since the date of booking and further stated that the buyers were entitled to a refund of the entire deposited amount along with interest at 9% per annum.

RERA (real estate regulation and development act), was introduced in the year 2016 with the motive of bringing legitimization in the real estate sector by the introduction of reforms, transparency, and time accountability.  This act provides redressal to the grieved party, protects consumer interest. It establishes the effectiveness of transactions related to property. The following are the impact of RERA on the homebuyers:

  • Builders cannot delay the delivery of projects; according to the law, developers are required to pay an interest of 2% points above the State Bank of India’s lending rate to the homebuyers in case of late delivery of possession.
  • The areas outside the walls cannot be charged; the buyers are expected to only pay for the carpet area. The builders cannot charge for the built-up area beyond (sometimes termed as the super carpet area). However, this has made no real difference as builders have jacked up unit area prices of the carpet area in order to cover the super carpet area costs as well.
  • The buyer is accountable for the liabilities as well
  • Transparency of details; the builders are required to disclose all the details related to the property i.e. the plan, approval layouts, FSI, and other related information.
  • RERA’s dealing with agents; RERA has proposed to every broker to get registered to make record tracking simplified as well as verified.
  • No extra or hidden charges by builders
  • Builders are accountable for defective houses; if any defect is discovered within the period of five years from handing over the possession, it needs to get rectified by the promoter under the RERA rules.
  • Secured transactions; the primary requirement for transferring funds is to open an Escrow account where 70% of the funds can be transferred for that particular project. The money cannot get used for any other purpose and can be only withdrawn according to the stages of construction which are required to get approved by engineers and chartered accountants of builders.
  • Coverage of flats; RERA has shifted the definition from 1000 sq. MT to 500 sq. MT or a total of 8 flats as the bare minimum for regulatory coverage.
  • Quick redressal; Disputes between builders and buyers are liable to get solved within 120 days under the regulatory body and appellate tribunals.
  • Consent; with the new amendments and formalities, buyers consent is required to change the project design. Promoters are required to have the consent of two-thirds of buyers in case of a project before making any change in the number of units.

SARFAESI ACT, 2002 concede the powers of annexing by banks. Under these provisions, the banks can issue a notice in writing to the defaulting borrower demanding the discharge of his/ her overdue/ defaulted liabilities after 90 days of the default period. If the borrower fails to respond the bank can take possession of the security in lieu of the loan or can even sell the same, lease, or assign the right over the security. After the approval of the DRT (Debt Recovery Tribunal)

In the meanwhile, the buyers do have some rights that can be exercised by them with respect to this provision;

  • The borrowers can hand over the dues and avoid losing the security before the sale is conducted.
  • If any illegal act is performed by the authorized officer, he/she will be subjected to penal.
  • The borrowers can approach DRT for rectifying the grievances.
  • The borrowers can get compensation if the defaults are made by the officer.

 

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