A home is a haven, your own little paradise to share with your loved ones. Owning a home has become easier with the availability of home loans offered by various banks and financial institutions at attractive and affordable interest rates. The real problem lies in choosing the right options that will ensure that you avail a home loan that is best suited to your needs. The right home loan scheme helps to increase your savings and reduce the burden of debt.
What is a Joint Home Loan?
A joint home loan is a housing loan which is taken by more than one person and repaid with equal financial responsibility. The co-applicants for the joint home loan can be family members, including spouses, parents, siblings and/or offspring.
You can take a home loan in joint names if you wish to avail a higher loan amount. Your chances of home loan approval is higher than loans applied for in individual capacity. The income tax exemptions are also a major highlight that comes with applying for a joint home loan and the tax savings are exponentially higher than in the case of a single-name loan.
Benefits of taking a Joint Home Loan:
- When you take a home loan jointly with your wife, mother, daughter or sister, and the property is owned by her either individually or jointly, some states offer a lower fee for property registration.
- The repayment of EMI for a joint loan has to be made from a joint account owned by the co-applicants. This makes it easier to track the contributions as well as enable ease of repayment.
- Succession and other legal issues are reduced if the husband and wife jointly owns a property.
- In a joint home loan, since the bank combines incomes of the applicants involved, a proportionately higher loan amount of loan will be sanctioned to them. Banks will be ready to offer you higher loan amounts if you opt for a joint home loan. This is because of the higher repayment capacity as there is more than one person who can repay this loan. The ratio of increase in loan quantum depends on the income of co-applicant(s) as well as the reputation of the organization where he/she is employed.
- Equal liability for repayment: if one of the applicants is unable to pay the amount due on the loan due to unforeseen situations, the Bank nor the customer has to fear about defaulting on loan payment since there is another equally responsible borrower who can pay the EMI. The obligation of paying the equated monthly installments moves on to the other co-applicant.
Advantages of Joint Home Loan in India:
As a borrower, the biggest loan you might ever take in your lifetime would be the housing loan. Because of booming real estate prices, a simple 2BHK house in an urban locality costs no less than Rs.25 lakh these days. The bigger the city, the costlier it’s housing. For example, a residential flat in Bengaluru could cost up to Rs.2 crore.
Naturally you will end up taking a huge loan to buy your dream house. You may have savings to invest in the house – but it is unlikely that you’d have anything more than half of the property’s price. But what would you do if the bank rejects your loan application claiming that your current salary is insufficient? This is where you should be thinking of taking a joint home loan.
Why Take a Joint Home Loan?
There are 2 advantages in taking a joint housing finance. They are:
- Higher loan amounts: Let’s say you wish to buy a house costing Rs. 1 crore, for which you need a loan of Rs. 75 lakh. The EMI of this loan could be around Rs. 64,000 per month for a tenure of 30 years. But your monthly salary is Rs. 60,000, which is way below the EMI amount. So if you apply for a home loan, your application is sure to be rejected. In such a situation, having a co-applicant can boost your chances of getting the loan. If you apply with your husband whose monthly income is Rs. 70,000, then your joint income will be acceptable to the bank.
- Greater tax benefits: Housing finance for self-occupied property comes with double benefits – tax break on repayment of principal amount under Section 80C and deductions on interest payment under Section 24 of the Income Tax Act. Usually, under Section 80C you can claim up to Rs. 1.5 lakh as tax deduction, and under Section 24, you can save taxes up to Rs. 2 lakh. What many people are not aware of is that in a joint home loan, both the borrowers can avail tax breaks individually. So on a loan that would usually give a total tax break of Rs. 3.5 lakh, joint applicants can claim a total tax deduction of Rs. 7 lakh – Rs. 1.5 lakh each under Section 80C and Rs. 2 lakh each under Section 24.
Conditions for Joint Home Loan:
Here are some points you must know before you decide on a joint housing loan:
- You cannot take a joint housing loan with any random person, or even a business partner. Only close relatives – spouse, parents, siblings or children – can be co-borrowers in a housing finance scheme.
- You can have a maximum of 6 applicants and a minimum of 2 applicants in a joint home loan. However, the number of co-borrowers depends on the bank’s discretion.
- To get the benefit of higher loan amounts and tax breaks, your co-applicant needs to be an earner too. The co-borrower could be salaried or self-employed, engaged in business or a profession. If you decide to make your homemaker mother the joint applicant, then neither of the above uses will be available to you.
- To avail the benefits of tax breaks, your joint applicant also needs to be a co-owner of the house. The tax breaks will be made available based on the ratio of ownership – 50:50, 75:25, etc. – which has to be confirmed by the lending bank in a certificate showing the distribution of the principal and interest for the EMI paid. So if your spouse has a higher income, it would be better to have a higher percentage of the loan amount and interest in her/his name so that s/he can get higher tax deductions.
- The tax breaks will be available only after the construction of the residence is complete. So if you are buying an under-construction property, you will not be able to claim the tax benefits until you start living in the house.
- Joint owners can also claim stamp duty and registration charges of a property.
- Each co-applicant has to fill in a separate application form and provide individual documents for the same loan.
- Repayment for a joint housing finance plan can be done either through a joint account of the co-borrowers, or by splitting the EMI equally or proportionally among them. You can opt for cheque or electronic clearance/standing instruction to your bank, as per your convenience.
- A dispute in ownership or repayment of loan can affect both the applicants, even if only one of them is at fault.
- It would be wiser for each applicant to take separate life insurance policies in order to cover the loan burden in case either of the borrowers dies.
Unless you completely distrust all your close relatives, there is no reason for you to not consider taking a joint home loan. It gives you a higher eligibility for the finance scheme and allows you to claim more tax deductions. None of the other loans give you so much benefits!
Eligibility and Documentation for Joint Home Loans:
In order to understand eligibility criteria it is important to understand who a co-applicant is. A co-applicant aka co-borrower is the partner along with whom you intend to apply for a home loan. The co-applicant can be your parents, spouse, children or siblings.
In the process of applying for a joint home loan, both the applicants involved have to submit relevant documents required for processing the loan such as: A copy of the Permanent Account Number (PAN), income proof, address proof, property documents and bank statements.
Tax Benefits on Joint Home Loan:
One of the highlights of taking a home loan is that it aids you in making tax savings, when you invest in a fixed asset. This would ultimately reduce the overall cost of loan considerably. Under Section 80C and Section 24 of the Income Tax regulations, those who avail home loan are eligible to get tax rebates. In order to claim the tax benefits on property, one must fulfill conditions such as - The individual/co-applicant must be a co-owner in the property as well as the co-borrower stated in the loan application to be eligible. Tax benefits are divided between the co-applicants in a joint loan and the division takes place in proportion to the manner in which the property is owned by each co-applicant.
There are two types of tax benefits available to the borrowers upon repayment of their housing loan. These are:
- Borrowers are eligible for a tax deduction of up to Rs. 2 lakh per annum on interest paid on home loan, under Sec 24.
- Tax deduction on amount paid as Principal amount repayment is eligible for deduction under Sec 80C. A loan repayment amount of up to Rs. 1.50 lakh is considered for the deduction.
Tax Benefits for joint home loan for the financial year 2014-15 & 2015-16 are –
- The co-owner of the property who is the co-applicant in the loan as well, can claim a tax deduction in their IT Returns, for an amount of up to Rs 2,00,000 as interest on the home loan. However, the property should be the only property owned and it should be self–occupied or vacant. For a property offered on rent, the whole interest can be claimed as a deduction.
- Under section 80C, the co-owners can claim a tax deduction within the limit of Rs 1,50,000/-, towards principal repayment.
One important feature of the tax redemption that can be availed is that, tax benefit of deduction on home loan interest as well as principal repayment can be claimed only once construction of the property is completed. If the property is still under construction, the benefits are not applicable.
Determination of loan tenure is dependent on a few factors as explained below:
- If the borrowers or co-applicants are a married couple, the tenure of the loan can be as high as at least 20 years, restricted to the retirement age of the older applicant.
- The maximum tenure of loan provided for taking joint home loans with co-applicants who are parents, siblings or children, is up to 10 years.
- Additionally, if parents are the co-applicants and their income is considered for repayment, the maximum term will be subject to the retirement age of the oldest applicant. Hence, the term will be shorter than in the case of taking a loan with your wife, siblings or offspring.
As discussed, joint home loan repayment is the collective responsibility of both the borrower and the co-borrower. But, any one of them can pay the monthly home loan EMIs or they can create a joint account to enable convenient and consistent repayment. The borrowers have the sole responsibility and freedom to decide the best option which would be feasible for them.
Joint home loans are definitely an option worth considering since it has several benefits when compared to a regular home loan. If you are looking for a home loan, it is better to plan a joint home loan with your family members. However, EMIs are to be paid as scheduled by either one of the borrowers since any delay or default in EMIs can lead to legal action against the borrower as well as co-borrower. The risks and benefits are shared equally.