No Home-Buyer would finalise a house without going through the property with a fine tooth comb. But the same cannot be said about them when they sign home loan agreements with banks or housing finance companies. Many assume that these are standard contracts, and hastily sign on the dotted line. They go through the documents primarily to acquaint themselves of the interest rate chargeable or the repayment schedule. This approach is not advisable at all, especially because a home loan is a long-term contract and will have a continual impact on your finances throughout the tenure.

Listed below are certain rights and liabilities you need to be aware of, to avoid nasty surprises later.

STUDY THE SANCTION LETTER CLOSELY

Given that documents of this nature tend to be bulky, some borrowers feel inclined to give their consent by merely relying on the lender's explanation, rather than reading the fine print, which is assumed to be a tedious affair. However, you would do well to steer clear of this mistake. Citing a case where the borrower signed the home loan contract without going through the terms and conditions, VN Kulkarni, chief counsellor, Abhay Credit Counselling Centre says, "The gentleman said that due to paucity of time, he signed the home loan agreement without going through the terms and conditions. He had assumed that the agreement entails repayment at a fixed rate of interest. Later, when he realised that it came with a provision to reset the rates after a specified period of time, he was taken aback." He suggests that if not the entire contract and the annexure, borrowers should make an effort to read the sanction letter, which spells out the responsibilities of the borrower and the bank, loan amount sanctioned and other terms and conditions.

WATCH OUT FOR HIDDEN CHARGES

Understanding the terms and conditions will also help you ascertain if the bank is levying any charges not mentioned orally. "For instance, the bank may decide to charge consultation or inspection fee, in addition to the processing fee, which the borrower may not be aware of," points out Madan Mohan, chief counsellor with the ICICI Bank-backed Disha Financial Counselling Centre. The borrower could also be liable to foot the bill pertaining to any tax paid on the interest amount. While banks have the right to levy such charges, you could make an attempt to negotiate with them to bring down the same. This apart, keep an eye on the pre-payment penalties, should you decide to clear your dues ahead of the schedule or switch to another lender. Moreover, your contract could state that in the event of the bank raising interest rates prior to the disbursement of the entire loan, the new rate, and not the one you may have consented to initially, would be applicable.

UNDERSTAND THE DISBURSEMENT SCHEDULE

Several home contracts are drafted in such a manner that the loan disbursal is linked to the progress of construction. Knowledge of this clause will help one raise an objection if the bank, in breach of the agreement, disburses the entire loan amount at one go and asks the borrower to start repaying the same. "In one such case, the bank did so and started charging interest on the entire amount, thereby increasing the borrower's total interest liability. Since the borrower was staying in a rented apartment, arranging for the combined outgo was beyond his means," recounts Mr Kulkarni. If your bank takes this step, you may have to approach the Banking Ombudsman or consumer courts for redressal.

CANGE IN EMPLOYMENT STATUS

Some home loan agreements insist that the borrower keeps the bank in the loop regarding any change in the status of employment, business or profession. They require the borrowers to make the communication within seven days of such a change. It could also stipulate that in the event of the borrower quitting the current employment or opting for retirement, the entire amount could become due with immediate effect and any amount that the borrower is to receive from her employer will have to be directed towards the repayment. However, generally, banks seldom exercise this option and instead, d prefer to restructure the repayment schedule to an extent.

INSURING THE MORTGAGED PROPERTY

"Insuring your house against fire, fire, natural calamities and other risks, is a must," informs Mr Kulkarni. The sum assured has to equal to the full market value of the property. If the borrower fails to insure the property or pay the premium regularly, the home loan agreement could authorise the bank to insure the property by debiting the borrower's loan account. The interest rate applicable to the home loan will be charged to the same.

BETTER SAFE THAN SORRY

* Before making an application for a loan, one must insist on a draft copy of the home loan agreement to understand the likely terms and conditions. The branches of the lending bank should be able to provide an unstamped copy

* PRIOR TO signing on the dotted line, examine all the clauses to make a note of charges that may not have been mentioned upfront - for in-stance, inspection or consultation charges. You could negotiate with the lender to scale down the same

* LOAN AGREEMENTS could stipulate if the borrower quits her job or opts for retirement, the entire amount could become due with immediate effect and any amount receivable from her employer is to be directed towards the repayment

* THE BORROWER may have to insure the property against perils such as fire and natural calamities. If she/he fails to make the premium pay-ments regularly, the lending bank may decide to debit the loan ac-count and charge interest as applicable

* IN THE event of breach of contract by the bank or the housing finance company, you could approach the Banking Ombudsman or consumer courts

Source: The Economic Times