If you are planning to shop for a home loan then interest rate charged by the bank may be of prime importance for you before finalizing on the deal. However your loan agreement is equally important and therefore it is advisable to know the agreement detail before signing the loan agreement.
Home loan agreement is generally viewed as a sheer formality and one always tends to ignore points that the agreement mentions. Beware as this may lead you to a big snag. The loan agreement is a contract that mentions some legal clauses in a fine paper and normally one does not really understand what the clause means. So here are some legal clauses that are generally present in a home loan agreement of any bank or housing finance companies (HFCs):
Reset Clause on Fixed Rates: Banks have introduced the reset clause in their fixed home loan documents so that they can increase rates in case the market rates increases in the future date. This clause permits banks to review rates at the end of certain number of year and it come into effect at the time of increase in the interest rates. Effectively, this makes the fixed rate loans equivalent to floating rate ones. This gives the banks an escape against interest rate increases but it is a disadvantage for the borrower who is mostly unaware about such content in his agreement. So read your loan agreement carefully to avoid future hassles.
Force Majeure Clause: There may be certain loopholes in your home loan agreement that allows the bank or home loan company to unfix and raise the fixed interest rate under exceptional circumstances. This all will be mentioned under the force majeure clause of your agreement. However the differentiation between the ‘exceptional circumstances' is always is tough task. But if you scrutinize your agreement then there are chances that you avoid semi-fixed rate loans that are often announced as fixed rate loans.