One of them is to make sure that you understand the ins and outs of your real estate credit contract. This important document can be quite complex, especially for first-time buyers. If you are not aware of certain aspects and what they mean, you may feel legally responsible for something you were not prepared for. Spread clause for variable rate loans: Variable rate loans are loans calculated based on the bank`s base interest rate and a spread at the base rate, depending on the type of loan and the customer`s profile. The base interest rate is calculated on the basis of the marginal cost of the bank`s funds (which depends mainly on the bank`s policy rates and deposit structure), the profit margin, the total cost of operating banks and, therefore, revised at regular intervals by banks in response to changes in the bank`s key rates and internal cost structures. On the other hand, the spread is calculated on the basis of customer-specific factors, such as the credit premium, which are charged to the borrower (based on its creditworthiness) and the operating costs specific to each account. Unless the bank has good reason to say that the borrower`s credit profile has changed significantly from the time the loan was paid, the bank should not change the spread of the loan to a customer. The RBI has consistently reaffirmed its philosophy of setting spreads for existing borrowers for variable rate loans.
However, banks may attempt to insert a clause if they retain the right to change the margin on loans based on factors such as the lease premium, market conditions, exceptional circumstances, changes in internal policies, and reserve the right to do so without disclosing the calculation to the customer. This clause has been hijacked by some banks to imprison customers at low rates and then arbitrarily increase the interest rate in force after a few months. This means that if you don`t restock your home loans, the bank (lender) can use your security to cover costs that you couldn`t make. In some cases, this may mean a withdrawal.