Buying a home is the one of the most heavy-duty expenditure we take up in our lives. And, given the huge amount of loan one has to sign up for, it’s no mean feat. In such a scenario, taking a joint home loan comes off as a breather. Take a look at the pros and cons of a joint loan. But first, find out who all are eligible for applying for a joint loan.
Who can be co-borrowers in Joint Home Loan
Spouse and blood relatives can be a co-applicant for joint home loan:
- Married couples
- Immediate blood relatives
- Parent–Child
- Siblings: Lending institutions usually do not prefer this arrangement due to fears of property dispute. The situation becomes especially tricky in the case of sisters.
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Pros and Cons of Joint Home Loan
Pros of Joint Home Loan
- Increase in loan amount: One of the most visible benefits of a joint home loan is the increase in the eligible loan amount. Banks usually prefer EMIs to be 40%–45% of the applicant’s monthly income. As the amount sanctioned for a loan is directly proportional to your income, a joint loan application hikes your potential loan amount by almost two times, provided the co-applicant too has a steady source of income.
- Tax relief: In the case of a joint loan, co-borrowers need to be co-owners as well to avail tax benefits on home loan. These benefits work best when husband and wife are co-applicants.
- Tax benefit on principal amount: Here, you can claim deductions of up to Rs 1.5 lakh under Section 80C. Further, you can save tax on the amount paid for stamp duty and registration.
- Tax benefit on interest amount: The maximum deduction allowed under Section 24B for a self-occupied property is Rs 2 lakhs. This deduction can be claimed on a yearly basis. An important point to note is if you are unable to acquire or complete the construction of the property within 3 years of taking the loan, the interest benefit will fall to Rs 30,000 from Rs 2 lakhs.
In short, joint loan applicants can together claim tax benefits of up to Rs 7 lakhs. Do keep in mind, applicants’ share in the loan is reflected in the tax benefits they enjoy.
- Affordable repayments: Co-borrowing also helps reduce the repayment burden on one borrower. With a joint loan, the pressure to repay is divided between the borrowers.
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Cons of Joint Home Loan
- Sudden repayment pressure owing to unforeseen circumstances: Life is unpredictable, and matters beyond our control can affect our repayment capability. For instance, a sudden job loss will severely impact the cash flow, burdening the co-borrower to repay. Similarly, a divorce can lead to issues of ownership and repayment. If the spouse refuses to repay or wants the terms of property ownership and loan to be altered, lenders will have to reassess the eligibility criteria or may even ask for an alternate co-borrower.
To sum up, co-borrowing is definitely a lucrative option to go for, with a lot of positives rooting for it. However, do not enter into a joint loan agreement blindly. Know your co-applicant and discuss all the possible scenarios with them to make an informed decision.
By Naveen Kukreja
This article was originally published in The Deccan Chronicle.