When a homebuyer avails of a home loan, there is an agreement in place between him and the money lender, citing terms and conditions regarding the home loan given and its repayment. Among the many clauses is the home loan reset clause, about which we talk in detail in this guide.
See also: 5 Ways to pay home loan faster
What is a home loan reset clause?
When it comes to home loans, there are two types of interest rates- fixed and floating. With the help of the home loan reset clause, the interest on fixed rate is converted to floating interest rates and charged according to the existing market rates. The period in which the fixed rate is converted from fixed to floating is after two to four years of the start of your home loan tenure.
How does the home loan reset clause work?
The interest on fixed rate doesn’t change even when there are changes with respect to interest rates in the market. This is one of the reasons why previously homebuyers even though they have to pay a little more comparatively, mostly opted for fixed rate of interest in home loan as compared to floating rate of interest. However, in today’s times with interest rates continuously shooting up, lenders have to include the home loan reset clause so that at some point the interest of fixed rate and floating rate loans are equal. The reset clause is prevalent in fixed interest home loans or mixed interest home loans.
Impact of home loan reset clause
Before signing the home loan agreement document with the money lender, ensure that you have read the fine prints carefully and are aware of all details with respect to home loan reset clause.
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Know exactly when the reset clause is initiated in your home loan tenure.
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Evaluate between the fixed interest, mixed interest and floating interest rates and choose what suits you best.
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If you choose fixed interest or mixed interest home loan, that means you are well- aware about the reset clause that will be applied to your home loan, based on the amount that you have borrowed.
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Also note that the reset home clause is sometimes only applied on select home loan borrowers based on the loan they have borrowed and the tenure that they will repay it.
FAQs
Under this, the interest rates of the fixed rate or mixed rate loan will be reset or readjusted after a particular period and will be at par with the floating interest rate.
The reset period clause is implemented between two to four years after your home loan tenure has started.
There are no caps on how many home loan you take. However, home loans are expensive loans and so should be availed after clearly evaluating on the amount you want to take and the how you plan to repay them.
Your credit score will be badly affected if you default on home loans.
A collateral is the property against which you get the home loan. Mostly, it is the same property for which you take the home loan. What is the reset period in home loans?
When is the reset period clause implemented?
Can I take two home loans?
If you default on a home loan, what gets affected?
What is a collateral?
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