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Joint home loan in India: Advantages and Disadvantages

Posted by on Sep 24, 2013 | Leave a Comment

Home is dream of everyone… some buy a large while some are happy with their small one. But it might be not possible for everyone to be in reach of that dream. Sometimes, it is possible that your home loan cost may be more than your individual income so here you have the option of joint home loan. You may share the amount of loan with your spouse or other family member. A joint home loan is a loan which is taken by more than one person. It becomes easier to get a large amount of money in the form of loan that might not be possible for the individuals. The relationship between the co-borrowers matters. Before deciding to go for a joint home loan it becomes very necessary to know about the advantages of joint home loan. Read more to know more about your joint home loan:

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Co-Borrowers: Co-borrower is the one, with whom the loan is taken jointly. In India, you can have co-borrower up to 6 persons. The co-borrower can be your child, spouse, and parent. You cannot have a friend or an unmarried partner, sisters or colleague as your joint co-borrowers. A father and an unmarried child can jointly take loan but in this case only daughter’s income is to be considered while granting the loan also the property should be on the name of daughter. The parties involved as a co-owner(s) are obliged to repay the loan.

Loan Tenure: In general, tenure means the time period for which the loan is granted. The maximum tenure in case of joint loan among spouse can be extended up to be 20 years or 25 years while in case of sibling or parent-child relationship the maximum tenure is extended up to 10 years. Most of the tenure depends from one bank to another bank. The long the tenure period, shorter will be the EMI and vice versa.

Loan repayment:  In case of joint home loan, the loan repayment can be made using a joint or a single account. The payment of the loan is made in the form of equated monthly installment (EMI). The EMI of the individuals depends on share of the individual and can be paid by using a joint account or a single account by the way of cheque or any other ways. Depending on the income of the individual person; you can plan number of EMI accordingly, and if another co-borrower refuse to pay the EMI then you will considered responsible for another partner payment. Other than this way, you can make payment in which one co-borrower can issue a particular number of cheques towards the payment and the rest is balanced by other co-borrower.

Documents required for Joint Home Loan

The main documents required to obtain the joint home loan are:

Identity proof that includes anyone out of these – employee ID, voters ID, driving license, ration card, passport, PAN card, bank passbook, letter from a recognized public authority/public servant verifying your photograph, or confirmation letter from the employer/another bank verifying your photograph.

Address proof includes anyone out of these – driving license, voters ID, passport, ration card, bank passbook/bank account statement, LIC policy/receipt, utility bill (telephone, electricity, water or gas (not older than 2 months), letter from any recognized public authority verifying your residence address, or letter from the employer.

Age proof required PAN card, driving license, bank passbook, birth certificate, 10th-standard mark-sheet, or passport.

Income proof of the salaried person and self employed person are different, you may also requires proof of any other property owned by you.

Advantages of joint home loan:

1. Large loan amount:

One of the advantages of joint home loan is that you can get loan on the large amount of money, as here the income of all the co-borrowers are considered while granting the loan. But in case of single home loan, the income of individual is considered which reduces the amount of loan. One thing for sure is that if you are taking joint loan with your daughter, then only her income will be considered. As most of the banks insist the customer not to have more than 40% to 45% of their monthly income as EMI. To make it clear here is an example.

Suppose if an individual income is Rs 10 lakhs per annum, bank may allow you the loan of Rs 30 lakhs and now if your spouse who is employed and whose annual income is also Rs 10 lakhs then bank may consider you eligible for the loan of 60 lakhs.

2. Tax benefits:

Additional Tax benefit is one of the reasons why most of the people go for joint home loan. According to Indian Income Tax Act, if you will go for a joint home loan, then you are eligible for various benefits. The tax benefit is beneficial in both principal amount as well as interest repayment. Under the Indian Income Tax section 80C, the single home loan holder will get a tax deduction of Rs1 lakh on principal amount while Rs1.5 lakhs on interest under section 24.

Whereas if you go for joint loan, then you and spouse both are eligible for deduction on the principal and interest repaid separately. To make it more clear here is an example:

If you had paid Rs 4 lakhs towards total principal repaid and Rs. 4 lakhs towards total interest repaid then the tax exemption for the both spouse on the principal payment will be Rs. 2 lakhs(1 lakh each) and Rs. 3 lakhs on interest repayment (Rs. 1.5 lakhs each).

3. Sharing a debt burden:

A joint home loan helps you to give a sigh of relief for the co-borrowers. Here the burden of making repayment is divided equally among both the spouse and hence the burden is not on individual’s shoulder.

Low registration fee:

4. In many states, the registration fee is low if the property is owned by women in individual and joint home loan. So if you are planning with your female co-borrower and want the property on her name, then you can save your money here.

Disadvantages of home loan:

1. Joint liability:

Here liability for both borrowers is joint where they are equally responsible for making repayment of loan, but this could be turn into demerit. If one borrower fails to make payment on time, another borrower has to make payment with the fine on behalf of the defaulter. So here your choice for the joint home loan could be turn into worse, if your co-borrowers are not making repayment.

2. Can’t claim HRA benefits:

If you are going for joint home loan, then you cannot avail the HRA benefits. HRA benefit is availed by those people who are residing on a rented property. As here the co-borrowers already owned the property, they cannot avail this benefit. However if one of them really want to aim the HRA benefit, then he/she has to make let go his/her share of the ownership. But here, it does not make any sense in sacrificing their ownership.

3. Collateral issues:

If one partner is using the property as collateral for some other purpose and if he could not be able to make payment there on time, then the case may turn into worse and there are chances where you might loose your property.

4. Further purchase problems:

According to Indian Income Tax Act, if you are making purchase of more than one house on your name then you will not enjoy the tax benefits because they considered one of the house as self occupied and another as rented, even if you have not. So, you have to pay the tax on the rent received on the second house.

5. Danger of unstable relationship:

There is no guarantee that a relationship will always be smooth and safe; so in this case, it may create a problem in paying the liabilities.

6. If one co-borrower looses the job:

The case may turn into worst in case of joint home loan if one of the co-borrower looses the job. The burden of repayment then come to other borrowers and this may even bring sourness in relationship.

Pros:

  • Large amount of loan can be taken.
  • More tax benefits
  • Burden of responsibility is shared.
  • Low registration fee.

Cons:

  • Making payment on behalf of defaulter.
  • Second House Purchase Problem.
  • Sometimes leads to collateral issues.
  • Unable to claim HRA benefits.
  • Danger of unstable relationship.

Image source: mycls.com.au


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