It is very important to understand the important terms of the finance agreement. A finance agreement is a complex document, a contract with a bank that a customer signs to cash out a mortgage. Many borrowers see this step as mere formality and tend to ignore the content of this lengthy document. Needless to say. However, it is important that the customer reads the finance agreement in detail and adheres to the specific terms of the agreement. This will help avoid future disputes and the resulting heartache. Learn some of the key terms in finance agreements that customers need to read in detail and understand before signing the dotted line when applying for a mortgage.
We recommend that the customer request a copy of the contract and carefully review the terms of the finance agreement.
Interest Rate Fluctuation Clause:
This clause generally gives the bank permission to change the interest rate based on changes in the base interest rate. When a customer takes out a long-term finance such as a mortgage, the bank is free to change the interest rate without the customer’s consent. This can happen when your bank changes the base rate. Customers who took out finance before 2010 may not be aware of this clause introduced later. Prior to that, mortgages were subject to prime interest rates.
“Default” Definition Clause:
Default is generally understood as the failure of credit drawn by a bank to be repaid, but different banks define default differently. More broadly, “default” could mean that the borrower has expired or been divorced, the latter being the case for joint finance. It may also mean that the borrower is involved in civil or criminal proceedings. A cross-default occurs when a borrower fails to repay a finance owed to another bank.
Security Coverage Clause:
This clause specifies the coverage provided for the finance for the entire term of the finance. The object obtained is usually assigned as collateral for the granted finance. However, if this is not enough, the lender may request additional guarantees from the bank to cover the outstanding amount, as this may occur due to price drops in the market.
Payment Terms:
Most mortgages are paid directly to the homebuilder, not the customer. Therefore, the customer should read this clause carefully before making any assumptions or plans. If it is stated that it is a direct debit, it will be transferred to another bank.
Force Majeure Clause:
This clause is also known as the Money Market Terms Clause. Pursuant to this clause, the Bank reserves the right to change the interest rates set in the event of exceptional circumstances or economic conditions beyond the control of the Bank. Therefore, fixed interest rates do not remain “fixed” forever. You MUST read and understand this clause in its entirety to avoid disputes with your bank at a later date.
Reset Clause:
This is yet another clause that applies to fixed interest rates. The bank reserves the right to change the fixed interest rate after 2 to 5 years.
Prepayment Clause:
The term “prepayment” refers to repayments in excess of the EMI amount specified in the contract. These overages are generally offset against the outstanding principal at the time of payment. The prepayment amount may be a fraction or the full amount of the finance amount. This clause sets out the economic consequences of such prepayments being made.
Other Balance Offset Clauses:
Any other unpaid charges such as late fees, contractual penalties, transaction fees, etc. in repayments made by the customer on the originally settled finance. Only after these fees have been collected in full will they be set off against EMI payments or finance principal repayments.
Third Party Repayment Collection Clause:
If a borrower defaults on a finance payment to a financial institution such as a bank, mortgage company or his NBFC, they have the right to disclose your personal information. reserve. To repay any third party finance they choose. Many borrowers are unaware of these clauses and get annoyed when they receive a call from a third party demanding a refund.
Amendment Clause:
This clause gives the financial institution the right to change the terms of the finance agreement without notice to the borrower. Each Amendment must be read in detail and properly understood.
Notice Clause:
The customer shall formally notify the lender of any change of residence, occupation or business, change of residency status, change of income level, etc. during the term of the finance increase. A time limit within this information must be specified and the method of notification is specified in the clause.
It is always important to understand that some aspects of the finance agreement, such as finance term and interest rate, can be negotiated with the lender. Therefore, the customer should critically examine and understand all material terms of the finance agreement before signing any paperwork.
Read More :
