Force majeure clause for fixed-rate loans: The home loan agreements of many leading banks may contain a clause allowing banks to change fixed rates in exceptional circumstances such as large fluctuations in market rates and changes in the Bank`s internal guidelines. The typical clause reads as follows: Caution: Carefully check the advance fees contained in the credit agreement plan and make sure that they comply with market practices, as well as what could be communicated to you orally by the seller. These fees would be a deterrent to your refinancing of this loan with another lender if your existing bank calculates you higher than market interest rates or if you revise interest rates upwards beyond the market movement. Prepayment Fees: Fixed income loans continue to be subject to a compensation fee. Even some variable rate loans may be subject to such fees. These fees can be between 1% and 5% of the loan amount and can be negotiated several times at the time of using the loan. Attention: this clause removes the nature of a fixed-rate loan. It does not contain a clear definition of changes in internal policies or exceptional changes in money market conditions. Force majeure clauses should cover situations of major disaster; a definition that has been distorted by banks in order to protect their liability. As a client, you have the right to negotiate with your lender in order to remove the clause and also protect your financial liability, especially if you pay a higher interest rate on your fixed income loans.
Attention: while most of these clauses protect the burden on the bank on the property, it is essential that the borrower understands the broader definition of default and fulfills these conditions with due diligence not to be considered a defaulting debtor. If you are uncomfortable as a borrower with any of the above clauses, timely discussions and negotiations with the Bank on the necessary changes before signing the contract may avoid unexpected turbulence in the future. Definition of customer default: An intuitive definition of a mortgage buyer`s default can relate to their inability to pay their IMEs on time. As simple as the definition may seem, the loan agreement may actually indicate several other reasons that are akin to a customer delay and give the lender the right to immediately terminate the loan. “Provided that, from time to time, the bank may appropriately and prospectively change the interest rate at its discretion due to changes in internal policies or in the event of unforeseen or extraordinary changes in money market conditions during the term of the contract” Attention: this clause terminates the essential comparative analysis of a loan and clearly goes against the dictate of the RBI. As a customer, you have the right to negotiate with your lender to remove the clause at the time of signing the contract and protect your financial liability. Even if you do not notice this clause at the time of signing the contract, you can always contact the banking ombudsman if your bank decides to increase the spread of its home loan on a good day. The Banking Ombudsman has issued numerous rulings that favour customers in such cases. Spread clause for variable rate loans: Variable rate loans are loans that are charged to the bank`s base rate, with a spread calculated on the base interest rate, depending on the nature of the loan and the customer`s profile. The base interest rate is calculated on the basis of the marginal costs of funds destined for the bank (which depend mainly on the bank`s policy rates and deposit structure), the banks` profit margin and overall operating expenses, and is therefore regularly revalued by banks in response to changes in banks` policy rates and internal cost structures. . .