Why a Joint Home Loan?
The primary source of fund for home buying being the home loan, one tends to apply for a higher home loan. However, banks do not grant more loan than the monthly income criteria, irrespective of the purchase price of the house. In such a case, a joint home loan application increases the chances of getting a higher home loan amount.
A joint home loan is a housing loan which is taken by more than one person and repaid with equal financial responsibility.
Joint Home Loan Eligibility
- The relationship between the co-applicants governs the joint home loan eligibility.
- Any two or more persons can jointly apply to buy the home.
- Spouse, siblings or parents are considered as valid co-applicants or co-borrowers.
- Friends, sisters or unmarried couples, business partners can be a co-owner of a property but they cannot be a co-borrower in a joint housing loan.
Co-applicant versus co-owner
A co-owner is a joint owner of the property whereas a co-applicant need not be a part owner of the property. The basic principle is that all co-owners of the property will have to be co-applicants of the home loan. However, all co-applicants need not necessarily be co-owners. Only their income is considered for credit / loan appraisal.
Key Benefits of a Joint Home Loan
- Higher Loan Eligibility: By pooling their incomes together while applying for a joint home loan application, the applicants become eligible for a higher loan amount and can hence afford a bigger and better home.
2.Higher Tax Benefits: By applying jointly for a home loan, tax deduction available on home loans can be enjoyed by the co-applicants separately, provided they are co-owners of the property and each one of them contribute to the home loan repayment.
- a) Principal repayments are eligible for deduction under Section 80C of the Income Tax Act up to a maximum limit of Rs.1.50 lakhs.
- b) Home loan interest payments enjoy tax deduction under Section 24 up to Rs 2 lakhs if the property is self-occupied; if the property is let out, the interest deduction under Sec 24 is restricted to Rs 200000 per annum
In a joint home loan, since each co-applicant is eligible individually for the above deduction, the collective tax benefits are much higher than in the case of a single applicant loan. The actual amount of tax benefit enjoyed by each co-applicant is in proportion to their contribution in repayment of principal and interest, subject to the limits mentioned above. Co-applicants can therefore plan how much tax benefit they would like to avail based on which they can decide what proportion of the loan each is going to repay.
There may be a situation where a person is paying the entire loan installment and the co-borrower is not contributing any payments. In such a case, one may claim the entire interest as a deduction in your Income Tax Return.
- Special Interest rates for women co-owners: Some lenders offer a differentiated home loan interest rate for women customers, which is usually a few basis points lower than the normal home loan rates. To take benefit of the discounted interest rate, a woman has to be the sole or joint owner of the property and an applicant or co-applicant for the home loan.
- Buying home in a preferred location
- Large loan amount for large house
- Attractive interest rates with enhanced home loan eligibility
A few instances where one should avoid applying for a joint home loan:
- Eligibility as a single applicant meets the person’s loan requirement.
- One has a low credit rating due a poor credit history.
- The person is repaying an ongoing loan, availed as per maximum loan eligibility.
- One is currently purchasing a lower value property (maybe for investment purposes) and may purchase a bigger property in the future for self occupancy.
- It is time to retire in a short period of time.
Home loan repayment is the collective and also individual responsibility of all co-applicants. Loan payments can be made in any way the applicants choose; they can separately make the EMI payment or do so through a joint bank account.
Joint Home Loan for Working Couples
Since there are two incomes to support the loan repayment, one can double the loan amount. Moreover, both will get income-tax benefits against the home loan. A person can get tenure of up to 20 years for a joint home loan with the spouse.
Joint Home Loan with Parents
One can add parent’s name as co-applicant if income is not sufficient for getting the desired amount of home loan. The tenure however could be limited to the retirement age of the parent. Thus EMI amount may be higher, or loan amount may be lesser.
Home Loan Jointly with Siblings
One can co-own the property with your brother/sister and apply jointly to avail higher loan amounts. Both will get income tax benefit for the repayment of principal and interest according to the share of ownership.
Share of Ownership
The bank is concerned about the income of each applicant while deciding on the amount of loan to be disbursed. Irrespective of their share in a property, each co-borrower is jointly and severally liable to repay the loan with interest.
For income tax exemption, it is applied in proportion to share of each co-borrower. If nothing is mentioned in the property agreement, it will be assumed that each co-owner has an equal share in the property. The total exemption claimed by all the co-borrowers must not exceed the actual payment made to the bank.
Debalina Roy Chowdhury