Category: Debt Management

Why take Joint Home Loan

Why take a Joint Home Loan?

Why Opt for a Joint Home Loan?

The primary means of financing a home purchase is through a home loan. Often, individuals seek loans exceeding their monthly income, but banks typically adhere to income-based loan approval criteria, regardless of the property's purchase price. This is where a joint home loan application comes into play, increasing the likelihood of securing a higher loan amount.

A joint home loan is a housing loan taken by multiple individuals who share equal financial responsibility for its repayment.

Joint Home Loan Eligibility

Eligibility for a joint home loan is influenced by the relationship between the co-applicants.

  • Any two or more individuals can join hands to purchase a home.
  • Valid co-applicants or co-borrowers include spouses, siblings, or parents.
  • Friends, sisters, unmarried couples, and business partners can co-own a property, but they cannot be co-borrowers for a joint housing loan.

Co-Applicant vs. Co-Owner

A co-owner is a shared property owner, whereas a co-applicant need not necessarily own a part of the property. The essential principle is that all co-owners must be co-applicants for the home loan, but not all co-applicants have to be co-owners. Loan eligibility is based on their combined income.

Key Benefits of a Joint Home Loan

  • Increased Loan Eligibility: Pooling their incomes when applying for a joint home loan allows applicants to qualify for a larger loan amount, enabling them to afford a better and more spacious home.

  • Enhanced Tax Benefits: Joint home loan applicants can individually benefit from tax deductions available on home loans, provided they co-own the property and contribute to the loan repayment.

  • a) Principal repayments are eligible for deductions under Section 80C of the Income Tax Act, up to a maximum of Rs.1.50 lakhs.
    b) Home loan interest payments enjoy tax deductions under Section 24, up to Rs 2 lakhs if the property is self-occupied. For let-out properties, the interest deduction under Section 24 is capped at Rs 200,000 per annum.

In a joint home loan, each co-applicant can individually claim these deductions, resulting in significantly higher collective tax benefits compared to a single applicant loan. The actual tax benefit for each co-applicant corresponds to their contribution to principal and interest repayment, within the specified limits. Co-applicants can strategically plan their tax benefits based on their respective contributions to the loan.

However, there are situations where applying for a joint home loan might not be advisable:

  • Sufficient Eligibility as a Single Applicant: If an individual's loan requirements are met through a single applicant's eligibility.

  • Low Credit Score due to a Poor Credit History: A person with a low credit rating, stemming from a less favorable credit history.

  • Ongoing Loan Repayment: If someone is repaying an existing loan, obtained based on maximum loan eligibility.

  • Purchasing a Lower-Value Property for Investment: When acquiring a property of lower value for investment purposes and intending to purchase a larger self-occupied property in the future.

  • Approaching Retirement: For individuals nearing retirement, a shorter repayment period may be preferable.

Repayment Responsibility

Repaying a home loan is both a collective and individual responsibility for all co-applicants. Loan payments can be made as per the applicants' choice, either separately or through a shared bank account.

Joint Home Loan for Working Couples

For working couples, a joint home loan is advantageous because it leverages both of their incomes, potentially doubling the loan amount. Furthermore, both co-applicants can enjoy income-tax benefits on the home loan. With a spouse, a joint home loan can span up to 20 years.

Joint Home Loan with Parents

When an individual's income falls short of the required home loan amount, parents can be added as co-applicants. However, the tenure may be limited to the parent's retirement age, potentially resulting in higher EMIs or a smaller loan amount.

Joint Home Loan with Siblings

Co-ownership with siblings enables a higher loan amount. Both co-applicants receive income tax benefits based on their ownership share.

Share of Ownership

While determining the loan amount, banks consider each applicant's income, irrespective of their ownership share. If the property agreement doesn't specify the ownership shares, it's assumed that each co-owner has an equal share in the property. The total tax exemption claimed by co-borrowers must not exceed the actual payments made to the bank.

Debalina Roy Chowdhury

Dilzer Consultants