Home Loan rates are lower than ever! Should you get a Home Loan with your sibling? Let’s find out!
The COVID outbreak has given a great opportunity to prospective property buyers as some developers have slashed prices to attract buyers. Also, in the resale market, properties are available at attractive discounts as many property owners who have more than one property are planning to sell one to reduce EMI burden. Worth mentioning here is that many have witnessed pay cuts after the lockdown was announced while some have also lost jobs.
Many young investors want to avail of this opportunity to buy property at rock-bottom prices. However, they don’t have the required income to buy a property with a Home Loan. In such a case, they prefer to make their parents or siblings a joint borrower in the Home Loan. Although, sometimes such an arrangement has led to disputes and complications later, still many prefer to take this route to buy property.
If you are one among them, then you should consider the following:
Major Tax Benefit
In case of a joint Home Loan, both the applicants get tax benefit separately on the same property. Each borrower can avail up to Rs. 2 lakh deduction on Home Loan interest payment every year under Section 24(b) of the Income Tax Act 1961.
In addition to this, both the applicants can avail up to Rs. 1.5 lakh deduction separately under Section 80C towards principal repayment. However, the condition to claim this benefit is that the construction of property should be complete. The loan interest is paid in the same ratio as the ownership share among the siblings.
Additional Reading: How To Manage Your Home Loan Like A Pro
In case of the sudden death of one of the co-owners of the property, it is easy to transfer the property to the other owner without any legal hassles. In the normal course, one would require documents like legal heir and death certificate of the property owner to transfer the property to the legal heir.
In case of joint ownership, the surviving sibling can have the property transferred in his/her name by simply getting a fresh registration done in his name in the presence of a lawyer.
In case of joint loans, banks consider income of both the applicants to derive their loan eligibility. For banks, having a co-borrower in a loan is a positive thing as it reduces the risk of loan repayment. So, it is advisable to jointly buy a property along with your sibling only if you are planning to buy a big house.
Additional Reading: 6 Tips For A Hassle-Free House Purchase
What you need to remember:
In case of any future conflict between the siblings, selling the property may become difficult. If both the siblings do not agree on selling the property, then investment done by another sibling gets stuck and his future goal with which he had aligned the property purchase would suffer.
EMI Payments Stop = Disputes
During the course of loan repayment, if one of the siblings stops giving his EMI contribution, then the liability of the other sibling will increase as he is the co-borrower for the loan. Any default on EMI payment by one sibling will damage the credit score of both the siblings and impact their borrowing capacity. Experts advise buying property insurance and term insurance to secure the borrowers from any future liability.
All right then. Hope this helps. Ready to apply? Click the link below!