Advertisements of beautiful villas with luxurious amenities are splashed all over newspapers. You wish to own one and the price also looks ideal. Next stop, you approach a bank for loan. That’s when you realise that, after paying the EMI for your latest car, you don’t qualify for the entire loan amount for this place.
Do you have to let go of the home for now and wait for your car loan to finish? No. You can instead opt for a joint home loan. Your spouse, parents, children and sometimes your siblings can also act as co-borrowers to the loan.
However, there are certain conditions to be fulfilled for availing joint home loans. All co-borrowers need not be property owners, but all property owners have to be co-borrowers. Husbands and wives can be co-borrowers to claim income tax benefits. Unmarried couples, female relatives such as sisters, and business partners do not qualify to become co-borrowers in most cases. A minimum of 2 and maximum of 6 people can act as co-borrowers for a single home loan.
MAIN ADVANTAGES
Increased borrowing capacity: Banks do not lend amounts where EMIs sum up to more than 40-45 per cent of take-home salary. If you are already paying an EMI for a vehicle or an existing home, then your eligibility comes down to that extent.
If your spouse, parents or children are not servicing any loan or paying a small EMI, then your total incomes put together will be taken into account while considering for a loan. Suppose a house costs Rs 75 lakh and you are eligible only for Rs 40 lakh according to your repayment capacity. Your spouse could be eligible for the balance Rs 35 lakh, according to her income limit. This especially is useful when you think of going in for a high value home.
Avail tax benefits: Tax benefits are one of the biggest advantages of availing a joint home loan. Section 80C of the Income Tax Act allows for rebate of up to Rs 1 lakh on principal repayment and Sec 24 allows a rebate of Rs 1.5 lakh on interest payment of housing of a self-occupied property.
For example, the principal payment for loan availed for a year is Rs 2 lakh and interest payment Rs 5 lakh. When a single person takes the loan, the maximum he can claim is Rs 1 lakh under 80C for principal repayment and Rs 1.5 lakh for interest repayment.
However, when it is a joint loan and both spouses are equal owners, both co-borrowers i.e., husband and wife can claim Rs 1 lakh and Rs 1.5 lakh respectively for principal and interest repayment individually. That would be quite a lot of saving on the income tax front. However, keep in mind that repayment for the loan should be done by both of you in proportion to your ownership ratio.
But as there are two sides to a coin, this too doesn’t come without disadvantages.
Loss of House Rent Allowance benefits: If you are enjoying deductions that come together with owning a property, HRA benefits cannot be claimed. Only a person staying on a rented property can claim HRA benefits. This is applicable if you are residing in the same place as your owned property. However, if you reside at a different place due to your employment, then you are eligible for both benefits.
Disputes at a later stage: If there is a fall-out between the co-owners due to some reason, settling repayment of the loan may be an issue. Also, if one of the co-borrowers quits work due personal or domestic reasons, then the burden of repayment falls on the other co-borrower.
(The writer is CEO, Bank Bazaar.com)
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