Getting a joint Home Loan can do wonders for your financial health. Want to know how? We will tell you.
A Home Loan is usually the biggest liability in an individual’s life, and thus needs a lot of deliberation. Sometimes you may want to buy a house which is quite expensive and hence, may not be eligible for the amount of loan that you might need. This is when a joint Home Loan can help.
As the name goes, this is a Home Loan taken by two or more people to buy a property. You can go for a joint Home Loan along with your spouse, parents, children and ‘select’ siblings. Now, that you know exactly what a joint Home Loan is, let’s look at all that you need to know about a joint Home Loan.
A co-borrower is the person who takes the Home Loan along with you. You will, of course, sign the same documents. You must understand that this is different from co-owner, which means a person who owns the property along with you. Usually, lenders insist that co-owners be co-borrowers of the loan. However, the reverse needn’t be true. That is a co-borrower needn’t be the co-owner.
They can just share the burden of the loan with you without owning the property. As you might know, a joint Home Loan is typically taken by spouses, or parents and children. Note that you cannot take a Home Loan along with your friend or colleague or an unmarried partner. Also, a brother and a sister cannot be co-borrowers.
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Lenders tend to provide higher tenures for joint Home Loans, especially if the co-borrowers are spouses. The maximum loan tenure is usually 25 years. However, in case, the co-applicants share a parent-child relationship or are siblings, then the maximum term might get restricted to 10-15 years depending on the age of the parent. This is because the repayment is linked to the parent’s income and the maximum loan tenure is tied in with the retirement age of the parent.
A joint Home Loan requires both the applicants to furnish the necessary Know Your Customer (KYC) documents. This includes your address proof, ID proof, income proof and bank statements. So, there will be two sets of KYC documents here.
Although the loan is taken by more than one person, the EMI payment will have to be made only by one of the borrowers. However, you can choose to make the payments from a single or a joint account where all co-borrowers are accountholders. If you need others to chip in, you can create a joint account and ask co-borrowers to pool in money into that account. Then, you can pay EMIs from that account. Note that all co-borrowers are jointly and severally liable to repay the loan. This means if one of the borrowers refuses to pay the loan, the other borrowers will be liable to repay the loan.
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Why go for that joint Home Loan?
Ability to borrow a higher amount
One of the most important reasons why you should go for a joint Home Loan is that you will be eligible for a larger loan amount. For example, let’s assume you would like to buy a property worth Rs. 1 crore and you earn Rs. 1.5 lakhs per month. The bank is ready to fund 80% of this amount, which is Rs. 80 lakhs. However, you must meet the eligibility criteria of the bank.
Is Rs. 1.5 lakhs enough for getting that loan? Maybe not. According to calculations that most banks might follow, someone who earns Rs. 1.5 lakh might be eligible for a loan of only Rs. 91 lakh. This is assuming that the person has no other liabilities. Since your income does not meet the requirement, you will have to look at a home that costs much less. Want that dream home that costs a crore? Then, get a joint Home Loan.
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An even more important reason why you should go for a joint Home Loan is the tax benefits that are just waiting for you. This is especially beneficial for spouses who go for joint Home Loans. Both of them can claim tax benefits, ensuring that the income of the family is saved from taxes. So, what are the rules?
The Income Tax Act allows all co-borrowers to claim both principal repayment as well as interest repayment as deductions from their income. Principal repayment falls under Section 80C and interest repayment comes under Sec 24 of the Income Tax Act. As an individual, one can claim up to Rs. 1.5 lakhs as deduction under Section 80C and Rs. 2 lakhs under Section 24. Can you claim that if you take a joint Home Loan too? Of course not!
The benefits that can be claimed will be in the proportion in which the co-borrowers share the property. Suppose, you go for a joint Home Loan with your spouse, which is to be held in equal proportion, then both you and your spouse can claim a deduction on the principal and interest repaid separately, to the extent of your share in the loan. Let’s take an example to understand this better:
|Home Loan repayment of Rs. 6 lakh||Single Home Loan||Joint Home Loan|
|Interest repayment||Rs. 4 lakhs||Rs. 4 lakhs|
|Principal repayment||Rs. 2 lakhs||Rs. 2 lakhs|
|Section 80C||Rs. 1.5 lakhs||Rs. 2 lakhs|
|Section 24||Rs. 2 lakhs||Rs. 4 lakhs|
If you take a Home Loan in your name alone, then the maximum deduction you can claim will be Rs. 1.5 lakhs on principal repayment and Rs. 2 lakhs on interest repayment. On the other hand, let’s suppose you take a joint Home Loan with your spouse and your repayment for the year comes to Rs. 6 lakhs, with Rs. 4 lakhs being interest repayment and Rs. 2 lakhs being principal repayment. You and your spouse have an equal share in the property. Then, both you and your spouse can claim up to Rs. 2 lakhs each under Section 24 and Rs. 1 lakh each under Section 80C. Isn’t that great?
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One other reason why a joint Home Loan might help is the benefit of lower interest rate handed out to women by many lenders. If a woman is the primary borrower for a Home Loan, then one can get interest discounts of up to 0.5%. How does this help?
|Home Loan of Rs. 50 lakhs||Single Home Loan||Joint Home Loan|
|EMI||Rs. 42,760||Rs. 41,201|
|Interest Outgo||Rs. 52.6 lakhs||Rs. 48.8 lakhs|
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Let’s suppose you take a Home Loan of Rs. 50 lakhs at the interest rate of 8.3%. Your EMI will work out to Rs. 42,760 and your interest outgo will be Rs. 52.6 lakhs. What if you got the loan at 7.8%? Your EMI will fall to Rs. 41,201 and your total interest outgo will be only Rs. 48.8 lakhs.
Convinced? Then, start scouting for a Home Loan. And be sure to compare across lenders to get the best rates and terms.