The cost of buying your first house is considerable. Before you can apply for a mortgage, you need money for a down payment. A shared home loan is typically considered when a person lacks the necessary cash or is unable to satisfy the lender’s eligibility requirements on their own.
By taking out a house loan jointly, one can increase their borrowing ability. Additionally, borrowing becomes simple when a single borrower’s credit score is insufficient to secure the loan amount they may want. Let’s examine the benefits and drawbacks of a combined mortgage.
Advantages of Joint Home Loan
1. Bigger Loan Amount
You will be qualified for a larger loan as a couple in comparison to an individual loan limit. Therefore, if your personal loan eligibility is, say, Rs 30 lakh and your spouse’s is, let’s say, Rs 20 lakh, your combined loan limit may be, let’s say, Rs 50 lakh, and you could be able to buy a bigger property.
The banks will provide you a loan up to Rs. 51.82 Lakh assuming a 10% interest rate on the house loan. However, if you have a co-borrower and your combined monthly income is at least Rs. 1.5 lakhs, you may be eligible to qualify for a home loan up to Rs. 78 lakh. As a general rule, if your salary is higher, a larger loan will be approved.
2. Interest Rates
In order to qualify for lower interest rates, people might add their mother or husband as co-applicants for a joint house loan. This is advantageous since most Indian lenders charge female consumers a lower interest rate. It is between 10 and 25 basis points less than what male borrowers pay in interest.
It can be advantageous to have the wife apply for the house loan first, as many banks provide lower interest rates to female applicants. Similar to the last example, stamp duty fees for registering houses vary slightly among states but are generally cheaper for women and couples.
4. Tax Deductions
You are entitled for several tax benefits if you obtain a home loan from one of the reputable banks, such as Tata Capital Home Loan, SBI Home Loan, etc. What about the co-applicants who have taken out a loan together?
Both applicants individually become eligible for tax exemption when you jointly apply for a home loan. In shared home loans, the total tax deduction is almost usually larger. Both applicants (who are also co-owners) are entitled for a tax deduction of up to Rs. 1 lakh on the principle amount paid under Section 80C of the Income Tax Act.
The co-applicants may receive an exemption of up to Rs 2 lakhs for both of them for a self-occupied property under section 24 of the Income Tax Act. You can take advantage of the tax benefit on a house loan for the entire amount of interest if you have rented out the property.
5. Flexible Terms of Payment
When you apply for a home loan jointly, your eligibility for a larger loan sanctioned amount increases. Both the principle and interest components of the home loan do not need the co-applicants to contribute equally. As a result, everyone of you may benefit from the freedom to choose who will make what contribution to the repayment.
6. Quick Transfers
In the case of the untimely passing of one of the co-owners, it is easy and hassle-free to transfer ownership of the property to the other owner. A death certificate for both the property owner and the legal heir would typically be required in order to transfer property to the legal heir, but this is not the case in this instance.
Disadvantages of Joint Home Loan
1. Credit Score
All applicants’ credit ratings would be affected equally if one of the cosigners on a combined house loan refuses to make the EMI payment. Experts claim that when loans are obtained with several co-applicants, this frequently happens. The couples’ future loan eligibility is decreased since EMI default affects them equally.
2. Death of the Spouse or Divorce
In the tragic event that one spouse passes away, the remaining spouse will once again be solely responsible for repaying the mortgage.
One applicant is responsible for repaying the loan in the event that a couple later decides to divorce or a co-borrower chooses not to participate in repayment. Legal ramifications for both borrowers are possible in the event of nonpayment.
3. Restricted Share
The woman will only receive a third portion of the property as a legal successor if the husband passes away without leaving a will and she is simply a co-applicant since the asset will be divided among the deceased’s parents, wife, and children.
4. Trouble Selling
If the co-owners have a disagreement in the future, selling the property may be difficult. If the property’s co-owners are unable to come to an agreement over a sale, one sibling’s investment is put on hold, which hurts the intended use for which he had decided to buy the property.
A solid credit history is important to lenders when considering applications, and a co-applicant with a bad credit history or a history of defaulting on prior loans would likely not be approved for a new loan. If your income is enough to cover your expenses and there are no further tax advantages available, you should refrain from taking up a combined mortgage in order to reduce your responsibilities.
Who all Can Apply?
The members of your immediate family, such as your parents, husband, male kid, female child who is not married, or brothers living together, may jointly apply for a house loan with you. Being a co-owner of the property is not required. However, in order to be eligible for the associated tax benefits, the co-borrower must also be a co-owner of the property.
A dual mortgage improves your loan eligibility and provides income-tax advantages to all co-borrowers. Make sure you include a co-applicant based on their income, credit score, and ability to repay the loan in full. With your partner, parents, and kid, you can apply for a joint loan.
If brothers are co-owners of the property, certain banks could enable them to submit an application for a combined house loan. However, obtaining credit may be difficult for friends, sisters, or unmarried couples living together.
How to Safeguard?
The primary applicant should get a term insurance plan and include the house loan responsibility in the cover to ensure that the weight of the mortgage does not fall on one spouse in the event of death or divorce.
In case there are disagreements in the future, the couples should sign and have notarized an agreement outlining each partner’s share of debt obligation.
Does borrowing jointly make sense?
To reduce the likelihood of putting the entire loan at danger, choosing the correct co-borrower is crucial. In a combined house loan, both co-borrowers must be informed of the terms and conditions in order to avoid a loan dispute. Make sure you understand the consequences if the co-borrower who is also the owner fails on the loan before agreeing to become a co-borrower on a house loan if you are not one of the property’s owners. Prior to signing a loan agreement with the lender, you must perform all the computations.
In consideration of the numerous advantages they provide, joint home loans are rather alluring. Receive hassle-free house financing whether you are applying jointly or separately. Get t