For most home buyers, receiving a loan sanction letter feels like the hardest part is over.
The bank has approved the loan.
The EMI looks manageable.
The house finally feels within reach.
But this is where many borrowers make a critical mistake – they assume the sanction letter is the final word. In reality, it is only the beginning of the most important phase of the home loan process.
Several key terms can still change after approval but before disbursement, and the document that truly binds you for the next 20-30 years is the loan agreement, not the sanction letter.
This article explains the real difference between the two, what can change after approval, and what borrowers must verify before signing.
Index
What Is a Loan Sanction Letter?
A loan sanction letter is a conditional approval issued by the bank after assessing:
- Your income and employment details
- Credit score and repayment history
- Initial property documents
- Loan eligibility and repayment capacity
It confirms that the bank is willing to lend, subject to certain conditions.
What a Sanction Letter Usually Contains
- Approved (sanctioned) loan amount
- Indicative interest rate
- Tentative EMI and tenure
- Type of interest rate (floating/fixed)
- Validity period (usually 3–6 months)
- List of conditions to be fulfilled before disbursement
What It Does Not Guarantee
- Final interest rate
- Final EMI amount
- Exact loan tenure
- Timing of disbursement
Most importantly, a sanction letter is not a legally binding contract.
What Is a Loan Agreement?
A loan agreement is the final, legally enforceable contract between you and the bank. It is signed just before or at the time of the first loan disbursement.
Once signed:
- The loan officially begins
- EMIs are legally enforceable
- All rights and obligations are fixed
This agreement governs your home loan for its entire tenure – sometimes up to 30 years.
The Biggest Misconception Borrowers Have
Many borrowers assume:
“Everything mentioned in the sanction letter will remain unchanged.”
This is not always true.
Banks are allowed to revise certain terms before disbursement, especially if:
- Documentation is delayed
- Property valuation changes
- Bank policies are updated
- Market interest rates move
These changes appear only in the loan agreement, not in the sanction letter.
What Can Change After the Sanction Letter?
1️⃣ Interest Rate May Be Revised
The interest rate in the sanction letter is often:
- Indicative
- Linked to prevailing benchmarks
- Subject to internal bank policy
If there is:
- A repo rate change
- A bank-wide rate revision
- Delay in fulfilling sanction conditions
…the final interest rate mentioned in the loan agreement may be higher or structured differently.
2️⃣ Loan Amount Can Be Reduced
Even after approval, banks can reduce the final loan amount if:
- Property valuation comes lower than expected
- Legal issues arise in property documents
- Builder approvals are incomplete
- Your financial profile changes
Borrowers often realise this only when disbursement is delayed or reduced.
3️⃣ EMI vs Tenure May Change Quietly
If the interest rate or loan amount changes, banks may:
- Increase the EMI, or
- Extend the tenure to keep EMI similar
Many borrowers don’t notice tenure extensions – but this significantly increases total interest paid over the life of the loan.
4️⃣ Charges and Penalty Clauses Appear in the Agreement
Sanction letters rarely explain:
- Penal interest clauses
- Late payment penalties
- Prepayment or foreclosure conditions
- Switching or rate reset charges
All these details are buried in the loan agreement, and they matter far more than the headline interest rate.
5️⃣ Disbursement Rules Become Strict
The loan agreement clearly defines:
- Stage-wise disbursement rules
- Technical inspection requirements
- Builder demand letter formats
- Conditions for release of funds
If these are strict, even a sanctioned loan can face repeated disbursement delays.
Why Banks Structure Loans This Way
From the bank’s perspective:
- Sanction letter = intent to lend
- Loan agreement = risk-managed contract
Banks keep flexibility until:
- Legal verification is complete
- Property risk is fully assessed
- Internal compliance is cleared
This protects the bank – but shifts the responsibility of understanding terms onto the borrower.
What Borrowers Must Verify Before Signing the Loan Agreement
Before signing, check that:
- The interest rate matches what was promised
- The spread over the benchmark is clearly mentioned
- EMI and tenure change mechanisms are explained
- Prepayment and foreclosure terms are transparent
- All fees and charges are final and documented
- Rate reset frequency is clearly defined
If something is unclear, ask before signing, not after.
Once the agreement is signed, changes are extremely difficult.
A Simple Rule to Remember
- Sanction letter = proposal
- Loan agreement = final commitment
Anything not written in the loan agreement cannot be enforced later, even if verbally promised by bank staff.
Final Takeaway
Loan approval feels like the finish line, but it isn’t.
The real financial commitment begins when you sign the loan agreement.
Borrowers who understand this difference:
- Avoid unpleasant surprises
- Retain control over their loan
- Protect themselves from long-term financial stress
In home loans, clarity at the agreement stage is far more valuable than excitement at the approval stage.