The home loan agreement is the agreement that you sign with the lender that lists the terms and conditions under which you have borrowed money to buy the house and all the obligations that you and the lender (the parties) must fulfill.
The home loan agreement is also referred to as mortgage loan agreement. When you sign the loan agreement, obligations are created, and you are agreeing to terms and conditions that are set out in the agreement, make sure that you have read the agreement, and that you understand all terms.
Do not sign the agreement unless you fully understand it
The loan officer must explain clearly what the loan amount is, how much you need to pay back monthly, what the interest rate is, what costs you have to pay for the loan, and all other aspects of the loan. The following information is usually found in this contract:
The loan amount
The loan term
The installment amount
The payment date
The interest rate charged and if it is fixed or variable
The consequences of late payment
The Consequences of short payment
The consequences of default
There are many terms that will be in the loan agreement, the most important ones are these:
The loan term is the period of time for which the lender is lending you the money, and by which time you must have paid the loan fully. For home loans it is usual long term, from 10 to 20years, if you wish to settle your loan in a shorter time or pay bigger installment you must advice the lender in advance and in writing. The lender may charge an early redemption fee.
This is the amount that the lender has lent to you, to enable you to buy your home. It may include amounts that you might need for costs, such as registration fee, origination fee and insurance. The amount the lender will grant you is usually determined by the value of the property. The loan amount is usually the purchase of the house, less any deposit that may be required. There are also other administrative charges that are added to the principal amount.
The primary deciding factor for the lender, however, is your earning capacity and whether or not you can afford the loan. Another name for loan amount is the principal debt, which is the total money that you have borrowed from the lender and that you have to repay over the loan term.
The lender will charge you for the use of its money. This is called interest. This, and through fees, is how it earns its money. The interest is usually expressed as a percentage of the loan, and is included in the monthly installment. The lender will advise you of the rate at which the interest will be charged. The rate may be fixed or variable.
You repay the lender in monthly installments. The lender will advise you what the installments are, and what has been included. The full installment must be paid on the same day every month. And this due date. Or repayment date is written in the loan agreement, and is always the same date every month. If the repayment is late the loan will be in default. And if you fall into arrears, an additional penalty interest on the arrears accrued shall be payable.
The lender requires the property to be insured against certain hazards and risks such as fire. This is homeowner insurance, this covers structural damage. The lender may require you to have life insurance or mortgage protection.
The lender registers a mortgage bond over the property, which gives it security over the property. The lender normally holds the title deed of the property in its possession. This means the lender uses the house as security, which means if you default on your loan repayments, the lender can sell the house to get back the money you still owe.
Costs of the home loan:
You will require to make certain cash payments either yourself or to the lender on accepting the loan offer. These are:
Legal fee for registration, transfer, stamp duty
A valuation or property inspection coat
Annual premium for property insurance
Mortgage protection or life insurance
Any other charges such as a ledger fee, appraisal fee.