India, as a community somehow looks up to the people who have their own homes, either by way of inheritance or through a new purchase. Not surprisingly, there has always been and continues to be an air of unparalleled self-esteem about having one’s own home. Given the fact that house often costs more than just a few lakhs, a vast majority of people rely on credit for the purchase or construction of their residential property.
Many people buying a home, as well as those Applying for a Home Loan, are oblivious to the benefits of co-ownership of a property. If you happen to be new to this term, let us break it down for you.
Co-ownership essentially implies joint ownership of a property. It may be in one of two common forms. The first being tenants-in-common, wherein two or more people may own the property. In this case, the co-owners are all equal partners. Here, if one of the owners passes away, their share is passed on to the nominee as per their will. Another type of co-ownership is joint-tenancy, wherein there exist multiple owners of the property. Here, however, if one of the co-owners passes away, their share is equally distributed amongst the surviving co-owners of the property. It is due to this very aspect of joint-tenancy that most financial advisors recommend couples to opt for this type of joint ownership.
Now that we are well-informed about the concept of co-ownership let us move forth to understand how and why it proves to be beneficial when it comes to buying a house, especially when a Home Loan is required.
Stamp Duty is often a mandatory charge that is levied at the time of the purchase of a property. While the duty per se differs from one date to another, it is often higher for men as compared to that for women.
For instance, in Haryana, the duty for men in urban and rural areas is slated at 8% and 6% of the cost of the property, while that for women is 6% and 4% respectively.
When it comes to New Delhi, the duty levied on men is 6%, while that for women is 4%. Hence, it proves to be more beneficial for you to opt for co-ownership so that you enjoy a comparatively low duty. If we take the example of New Delhi, co-ownership will imply that will just have to shell out 5%, instead of the usual 6% in case a single male owner will purchase the property.
Similar benefits can be enjoyed on the registration charges of the property as well.
It is considered a good financial practice to restrict the equated monthly instalment (EMI) towards a Home Loan to 40% of the net monthly income. Hence, if your income is 1 Lakh a month, you will only be eligible to take a loan such that your EMI is confined to a maximum of 40,000.
If on the other hand, you purchase the property as a co-owner with your spouse, with their income being 80,000 per month, you will be eligible to take a loan for which the EMI comes to a whopping 32,000 plus 40,000 i.e. 72,000.
Needless to say, not only will co-ownership enhance your loan eligibility but will also significantly increase the loan amount that you can apply for. Besides, the lender will be more willing to offer the loan since it can rest assured of the fact that there are two or more people who are responsible for the repayment, thus reducing the chances of any default drastically.
When it comes to repaying loans having a partner along with you to shoulder the responsibility can come in handy, especially during difficult times like family emergencies, job changes, and other substantial shifts.
When you co-own the house with your spouse, and you both enjoy separate sources of income, you will be both entitled to claim the deductions. Under Section 80C of the Income Tax Act, you will both be eligible to claim up rebate on up to 1.5 Lakh paid towards the repayment of the principal amount. Moreover, the stamp duty, as well as the registration charges can also be claimed for the rebate, under benefits for the principal repayment albeit, only in the year of the payment.
Besides, you can each claim rebate of up to 2 Lakhs on the interest paid in any given year, in line with Section 24(b) of the Income Tax Act. Here, you must note that this exemption is also applicable to the processing fee as well as the prepayment penalty charged by the lender.
When a single person owns a property, its succession can be tricky if there is no formal will. Even then, the legal formalities can take prove to be time-consuming. Co-ownership can help efficiently combat this problem. In case one of the owners passes away, the property will automatically be transferred to the co-owner, without any need for a legal transfer.
We hope that you are now better informed regarding the numerous benefits of purchasing a residential property in co-ownership, preferably with your spouse. So, wait no more before you do so, and revel in the subsequent Home Loan Benefits that will come along!
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