Welcome to CS Students' Online Club. Our MISSION: "To create a online network of budding governance professionals". Our VISION: "To be a leading network of governance professionals, providing scope for knowledge and career development".

CSoC Members Count:
Latest topics
» Past Question Papers of CS Executive / Professional / Foundation Exam Upto December 2016 Session
Wed 1 Feb 2017 - 0:11 by rchgiri

» Direct & Indirect Tax Laws Updates & Select Cases for CS Executive/Professional December 2016 Examination
Wed 11 Jan 2017 - 16:59 by rchgiri

» Financial Treasury and Forex Management>Past Questions of 60 marks>CS Professional
Thu 5 Jan 2017 - 9:45 by rchgiri

» CS EP NS P2 Cost & Management Accounting > MCQ
Sat 8 Oct 2016 - 17:57 by rchgiri

» CS Professional / Executive Programme Guideline Answers upto June 2016 Exam
Sun 28 Aug 2016 - 16:49 by rchgiri

» Tips on "How To Face An Interview & Career Planning"
Tue 23 Aug 2016 - 9:55 by rchgiri

» SEBI Act, Rules, Regulations, etc.
Mon 1 Aug 2016 - 14:48 by rchgiri

» CS Dinesh Chandra Arora, New Secretary of ICSI
Thu 21 Jul 2016 - 15:34 by Club CEO

» Online Learning of CS Executive coaching classes
Wed 11 May 2016 - 23:11 by raviesm

» Service tax Reverse Charge Mechanism.
Mon 15 Feb 2016 - 21:51 by siva004

» Service tax credit on step ladder repair
Mon 15 Feb 2016 - 21:37 by siva004

» CS Mamta Binani elected as New President of ICSI & CS Shyam Agarwal elected as New Vice-President of ICSI for 2015-16
Tue 19 Jan 2016 - 12:08 by Club CEO

» CS PP Old Syllabus: P4: CRI: Questions & Answers >> Correct or Incorrect:
Sun 13 Dec 2015 - 20:28 by rchgiri

» The Companies Act, 2013: The Rules made thereunder, Circulars & Notifications Issued by MCA
Sat 5 Dec 2015 - 12:42 by rchgiri

» New CSoC Face Portal
Thu 8 Oct 2015 - 9:01 by Club CEO

» CS Trainees / Jobs
Wed 23 Sep 2015 - 14:36 by rchgiri

» General Notice to Club Members & Well-Wishers
Tue 8 Sep 2015 - 15:36 by Club CEO

» online coaching for cs professional old syllabus
Sun 6 Sep 2015 - 13:41 by rchgiri

» Automatic Switchover To Professional (New Syllabus 2012) From December, 2016 Session
Thu 3 Sep 2015 - 15:49 by rchgiri

» Can anybody tell Main object clause for Manufacture of machinery of Polyurethanes industry.
Wed 2 Sep 2015 - 14:59 by parul5986

Top posters
rchgiri (1527)
Club CEO (1158)
praveen999 (691)
Soundharya (591)
mione (424)
lalitha.purohit (283)
j.padiya (277)
Preetpal Singh (219)
Aswathy (193)

You are not connected. Please login or register

View previous topic View next topic Go down  Message [Page 1 of 1]

1 Applying for Home loan ? ,Note These Facts on Fri 27 May 2011 - 12:04


CSoC Smart User
CSoC Smart User
Sameer Tiwari, a Pune based mechanical engineer, thought he had made a “prudent decision” by opting for a fixed rate EMI when he took his home loan five years ago from a reputed national bank.

Three years after the date of disbursement, Sameer received a letter, which said it was time for renewal of his loan and that the interest on his fixed home loan had been increased by 0.5 per cent. Though this did not mean a change in the actual EMI he paid, this would however reflect first on his loan tenure, which would be increased to accommodate the interest change. On checking with the bank, he learned that there was a clause in the agreement that said the fixed rate was only for a period of three years and not for the entire loan tenure!

This letter brought endless, sleepless nights to Sameer and his family now, they had to recalculate and replan all their income sources and planned expenses because the “fixed EMIs (Equated Monthly Instalments)” will increase!

What is a loan agreement?

A loan agreement is a ‘contract’ entered into between the borrower and the lender (banks and financial institutions) that regulates the terms of a loan. The loan agreement comes into picture immediately after the bank appraises your credit and the property that you have identified.

The agreement and the fine prints…

In the euphoria to acquire that dream house, various clauses in the loan agreement are often overlooked. However, these clauses have a significant bearing on areas ranging from interest rates to repayment schedules. Reading home loan agreements is generally viewed as a sheer formality and one always tends to ignore points that the agreement mentions. Moreover, the legal language used in the document often seems more alien than human!

In any case, not reading a loan agreement thoroughly can land you in a soup. Here are some clauses, which should be searched for inside a loan agreement and be clarified with your HFC (Housing Finance Company):

Reset Clause on Fixed Rates: Banks have introduced the reset clause in their fixed rate, home loan agreements so that they can increase interest rates in case the market rates increase in future. This effectively makes fixed rate loans equivalent to floating rate ones. This gives the banks an escape from interest rate surges but is a disadvantage for the borrower who is mostly unaware about such content in their agreement. Typically, the period for such reset clause varies from two to five years depending on the bank or housing finance company you borrow from. So read this clause in your loan agreement carefully.

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 will be mentioned under the ‘force majeure’ clause of your agreement. However, the differentiation between ‘exceptional circumstances’ and normal circumstances is always a tough task.

For e.g. A cut in banks’ prime lending rate is not automatically translating into reduction of all PLR-linked loan rates. The reason being cited is that the bank’s margins are under severe stress due to lending rate cuts. They feel interest rates on some existing sub-PLR loans do not even cover their cost of funds and any further fall in those sub-PLR loans will worsen the matter. Therefore, some public sector banks have revised the existing loan contracts in case of select sub-PLR borrowers, by using the ‘force majeure’ clause, meaning a ‘situation beyond control’.

Defining a Fault: A ‘fault’ for a layman often means a non-payment of an EMI during the loan tenure. However, your bank or HFC may have a different meaning for this term. The home loan agreement of few banks defines fault as a case when the borrower expires, the borrower is divorced (in case of more than a single borrower), or the borrower is/are involved in any civil litigation or criminal offence. Therefore, you must be clear what your lender means by the term ‘fault’.

Security cover at times of falling property rates: This clause states that a bank is eligible to demand additional security when property prices fall. Even if you are loyal on your EMI payments, this clause demands a security cover in addition to your loan amount and if a borrower fails to provide such a security then he/ she may be declared a defaulter by the lender.

Floating is Fixed and vice versa: Floating rate as well as fixed rate home loans are linked to the Benchmark Prime Lending Rate of a bank or the HFC from which you take a home loan. Hence, if the BPLR is 13.5 per cent and floating rate home loans are at a discount of 1.5 per cent to the BPLR, then the interest rate on a floating rate home loan is 12 per cent. So whenever the BPLR is raised, then the interest to be paid on the floating rate home loan goes up. The vice versa also holds true.

However, banks and HFCs do not show the same alacrity to reduce the interest rates, which they might have shown when increasing it. When interest rates come down, banks and HFCs offer lower rates to new customers but existing customers continue paying the higher interest rates. Check with the bank or HFC regarding the details about such clauses.

These clauses are overlooked by most home loan borrowers and some of them eventually end up paying interest rates, fees, or hidden charges completely out of the blue. It is imperative that you have a thorough understanding of such clauses with your bank or HFC.


View previous topic View next topic Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum