Home Loans are undoubtedly popular in India, where many dream of buying their own house. Although a Home Loan appears to be simple and straightforward enough at first sight, there may be a few legalities that you need to understand before applying for one.

Of the many terminologies associated with loans, the reset clause is often the most overlooked one. You may ask, what is a Home Loan reset clause? Well, here’s what you need to know about it.

Maintaining Control Over the Interest Rates

When you apply for a Home Loan, you’re given the option to choose either a fixed-rate loan or a floating-rate loan. As you may already know, a fixed rate of interest remains constant throughout the loan tenure, while a floating interest rate changes according to the prevailing market conditions.

Now, if you take a fixed-rate loan for say 13 years, then you may be thinking that your interest rate is going to be the same over the next decade. This is where you’re wrong. After a certain point of time, your lender can convert your fixed rate of interest into a floating one. The Home Loan reset clause is inserted into your agreement for this very purpose.

Home Loan Reset Clause in India

Depending upon your agreement, the reset clause usually comes into play after 2 to 5 years from the first disbursement. For instance, let’s say that you’ve taken a Home Loan of INR 50 lakh at a fixed rate of 11% for 10 years. Your lender, however, has inserted a reset clause after 3 years. So essentially, your interest will remain at 11% only for the next 3 years. Once the clause comes into effect, your lender may decide to reset your interest rate. That’s why it’s important to understand the reset clause in a Home Loan.

By properly interpreting your agreement, you can avoid the common problems faced by Home Loan borrowers in the country.

If you’re looking to take a house loan, then consider the attractive options that Bajaj Finserv provides. This company offers Home Loans at attractive interest rates. From application to approval, the entire process takes places online in just 5 minutes. What’s more, you can prepay anytime you want and foreclose your loan without any additional charges. Apply online today.

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