The clause known as the Force Majeure Clause states that “Provided further that from time to time, the bank may in its sole discretion alter the rate of interest suitably and prospectively on account of change in the internal policies or if unforeseen or extraordinary changes in the money market conditions take place during the period of the agreement” Usually there is a time frame, from which Banks can enforce the changed rate of interest and this time frame could be anywhere between 2-5 years. Banks protect their interests in the lending process, so as to create conditions that will help them stabilize themselves in times of crisis and they do put this in effect and revise the rates from time to time.
The general understanding is that fixed home loans are fixed in nature and do not alter in any manner throughout the the tenure of the loan. This is not strictly the case and is restricted to certain conditional environments. Banks have the right to change this interest rate if conditions in the market change dramatically or if the the internal policies of the bank change. Hence, one cannot arrive at a conclusion that fixed interest rates will remain fixed for the entire loan tenure of the loan applicant.
Time and again stress is laid on reading the fine print in any money or legal transaction and this fact is explicitly stated in the home purchase loan agreement document that is provided by banks and financial institutions.
The clause known as the Force Majeure Clause states that “Provided further that from time to time, the bank may in its sole discretion alter the rate of interest suitably and prospectively on account of change in the internal policies or if unforeseen or extraordinary changes in the money market conditions take place during the period of the agreement” Usually there is a time frame, from which Banks can enforce the changed rate of interest and this time frame could be anywhere between 2-5 years. Banks protect their interests in the lending process, so as to create conditions that will help them stabilize themselves in times of crisis and they do put this in effect and revise the rates from time to time.
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 could be 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’.
The learning for the loan seeker here is then to weigh the pros and cons of fixed interest rate home loans vs. Floating rate home loans. Come to think of it, this clause really changes the equation.
Rewrite the agreement in such a way that you force the bank to provide fixed rates for fixed tenure.
Banks lend to large corporates this way.
They take advantage of the smaller man.
Fight back and refuse to sign on the dotted line.
The bank's version of the document is not the law.
Provide your own changes to agreement, and if the bank does not agree, go to another bank.
no bank will agree…dont be a fool hahaha
Hi Mr. Ananda, If u refuse to sign the agreement, you are at the loosing side, There can not be any bank functioning for charity or for Mr. Ananda alone. You dont seem to bother about the fact that once with the help of the bank the property purchased might have appreciated in value, but banks never ask u for the returns you get by sale of such a property, but only the interest amount and principal o/s till that period. for better clarity, i would advise you or any one else to apply for a floating rate housing loan…..
I request to the Indian GOVT abd Banking sectors, pl you dont think about home loan interest rate +/- you think about unemployment becouse if a person have good work ( service / business ) he/she can take housing loan on higher interest rate ( like 13.50% in 2000 ) which was in 1999 – 2000 secoundly if you reduce the interest rate and incresed slabe of repayment of interest on housing loan how he / she can pay every day we are reading / watching that so maney employees are lossing the jobs. So you think about the employments not about interest rate, we can afrod that if we have good job.
thx * rdg.
Rajesh Kumar Morwal
Mumbai.