Joint Home Loan-Advantages and Disadvantages

Joint Home Loan is one of the best-marketed product by banks and NBFC’s. Through Joint Home Loan banks hedge their mortgage risk. These days almost all the banks insist on Joint Home Loan even if the property is bought in a single name. Quite interestingly even if the wife is non-earning/housewife then also banks insist on Joint Home Loan. The biggest carrot to SELL Joint Home Loan is Home Loan Tax Benefits. I agree that if both Husband and Wife are availing tax benefits then it make sense to avail Joint Home Loan.

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 family members are usually accepted as co-applicants in a Home Loan

• Parents
• Spouse
• Unmarried daughter
• Son

Pros of Joint Home Loan

1. Higher Loan Amount

When you apply for a home loan jointly with your spouse, parents or siblings, the amount of loan that you can avail increases substantially. Banks see the applicant’s net monthly take-home salary, and then decide on the amount of loan to be disbursed. If a person has a net salary of Rs 1 lakh per month, normally the bank would offer a loan on which the EMI could be as high as Rs 50,000 (half of the monthly take-home), or Rs 51.82 lakh, if the rate of interest is 10 per cent.

If the applicant wants to avail a higher loan, he/she can apply jointly with their spouse, parents or siblings. If the total monthly take-home salary of the co-applicants is Rs 1.5 lakh, then together they can apply for Rs 78 lakh of home loan.

2. Tax Benefit

If the co-applicants are also co-owners of the house, they can both claim tax deduction benefits. As per latest budget provision,second house owned is not subject to notional tax,it is taxed only if rented out. If no rental income received from second property, no income tax on rent applicable. Both the principal repayment (up to a maximum of Rs 1.5 Lakh a year) and interest paid (up to Rs 2 lakh a year) are eligible for deduction from the taxable income, thus bringing down the overall tax liability of home loan borrowers. If both the co-owners are repaying the principal and interest, they can both claim the tax benefits (up to a maximum of Rs 1.5 Lakh a year) . Thus, a joint home loan allows co-owners to double the tax benefits from a single home loan.

3. Flexibility of Repayment

While jointly taking a loan makes you eligible for a higher loan amount, it is not necessary that both the partners have to contribute equally towards the loan and interest payment. It is entirely in the hands of the borrowers to decide how much each applicant contributes towards repayment.

4. 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.

Cons 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.

3. Exceptions

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 or Death

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.

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