Joint Home Loan: Advantages and Disadvantages
Owning a house of your own is a significant achievement and a key milestone in one’s life. At times, not having sufficient earnings or the higher cost of the property, could be your hurdle in realizing this dream. Home Loans can come to your rescue at such junctures. In today’s scenario, where double income in families is a growing trend, having a co-borrower is a good option. Loans taken by two people together are called Joint Home Loans. If you take a Home Loan jointly, the repayment capability is higher. While there are many advantages of availing a Joint Home Loan, there are a few disadvantages as well.
Before you understand the pros and cons of Joint Home loan, it is important to understand who all can be considered as co-applicants for the Home Loan. The following people are usually accepted as co-applicants in a Home Loan:
- Unmarried daughter
You should also remember that if you are a co-borrower in say a TATA Capital Home Loan; it does not automatically make you the co-owner of the home too. However, to be able to avail the maximum tax benefits, banks will advise you to become a co-owner as well.
Advantages Of Joint Home Loan
1. Increased Loan Amount
When you apply for a Joint Home Loan, with your spouse, parents or son as a co-borrower, the total income increases. For instance, when you apply for an SBI Home Loan, the bank would assess the loan EMI as a portion of the combined income. If EMI to monthly salary ratio is high, there is a higher probability for you to default on the Home Loan. This means risk for the banks. So they are usually in favour of Joint loans to mitigate risk.
The banks would offer you a loan of up to Rs51.82 Lakh considering the rate of interest to be 10%. However, if you have a co-borrower and your joint earnings are Rs.1.5 lakhs per month then, you can apply for a Home Loan of up to Rs78 lakh. So as a thumb rule higher your income, higher is the loan amount sanctioned.
2. Tax deductions
When you take Home Loans from any reputed banks like TATA CAPITAL Home Loan, SBI Home Loan, etc. you are eligible for some tax benefits. What about the co-applicants who have jointly taken a loan?
When you jointly apply for a Home Loan, both the applicants individually, become eligible for tax exemption. The collective tax deduction is always higher in joint Home Loans.
Under section 80C of the Income Tax Act both the applicants (also co-owners) are eligible to avail tax deduction up to Rs. 1 Lakh on the principal amount paid.
Under section 24 of the Income Tax Act, for a self-occupied property, the co-applicants can get an exemption of up to Rs 2 lakhs for both the co-applicants.
If you have rented out the property, then you can enjoy the tax benefit for the complete interest amount
3. Concessional interest rates
Some financial institutions offer a more flexible and lower rate of interest to women co-applicants. There is a rider that women in such scenarios should also be the co-owner of the property. You should submit the KYC documents along with ownership deed to avail of such benefits.
4. Flexibility of repayment
When you jointly apply for Home Loan, you become eligible for a higher sanctioned amount of loan. It is not mandatory for both the co-applicants to contribute equally, for the principal as well as the interest component of the Home Loan. Therefore, each of you can enjoy the flexibility of deciding who will contribute how much for the repayment.
Disadvantages of Joint Home Loan
1. Documentation gets delayed
As there are two applicants, so the time taken by the banks to complete processing and document checks is more. The due diligence by the authorities takes longer time as they have to ensure that the documents submitted by both (or multiple) applicants are authentic and not forged. The credit history of the applicants also needs to be cross-checked.
Basically, this entire process of cross verification is repeated two or three times, depending on the number of applicants who have jointly applied for the Home Loan.
2. Impact on Credit score
As you are aware that joint Home Loans give the flexibility to both the applicants to decide on repayment; there is a flip side to this advantage too. In case any of the two applicants defaults on payment, then the credit history of both of you would face the brunt.
From a long term planning perspective, if you and your spouse are working, you may want to consider buying another property in the future. As per income Tax guidelines, if you have more than one house in your name, then one of them is considered, and the other is by default considered to be rented out.
You would be required to pay income tax on the rent received if you have rented out your second property. However, if you have not rented out your second property, it is deemed to be rented out. Thus, you would still have to pay income tax on an amount which would have been your rent, as per current market rates. Basically, you end up paying tax on an income you are not even receiving.
4. Divorce cases
If there is a case of divorce between two co-borrowers and a spouse decides to move out of the loan. Then it is the responsibility of the first applicant to pay the entire loan. If the applicant defaults in repayment, it entails a legal action on all joint borrowers.
There could be another case where one of the co-borrower passes away or files for insolvency. Herein, the surviving spouse needs to take responsibility of the loan. It is thus recommended to avail separate term plans or life insurance so as to decrease the financial load on one applicant in case of demise of the other.
Joint Home Loans as you can see, have more benefits than risks. Decide judiciously how to make a maximum of those advantages and be careful to avoid the pitfalls.
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