What is a joint home loan?
A home loan where there is more than one borrower termed as a joint home loan. These co-borrowers can be spouses, parents, children etc. Co-borrowers in joint home loan has to be in blood relation. No two friends can be co-borrowers. In fact, banks sometimes avoid giving the loan to siblings unless they are co-owners in the property. This also happens in the case where the loan is taken with parents as co-borrowers. It is only in the case of spouses where banks don’t demand the co-ownership on the said property of co-borrowers.
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Having a joint home loan is advantageous when both the co-borrowers are taxpayers. But do keep in mind that to claim income tax benefits in joint home loan all the co-borrowers should be the co-owners. Tax benefits can be claimed in the same ratio as the loan taken by co-owners.
A co-owner who is not a co-borrower is not entitled to income tax benefits. Similarly, a co-borrower who is not a co-owner cannot claim tax benefits. Below are few examples which will make this concept clear.
Flat value – Rs 75 lakhs
Loan amount – Rs 60 lakh
EMI for 20 years @ 10% p.a (reducing) – Rs 57901/- p.m
Case 1 – Husband (H) and Wife (W), both are working and taxpayers. H purchases a flat in his own name and to manage the burden of EMI takes a home loan with W as a co-borrower. In this case, though W is the co-borrower and contributes in the EMI, still she would not be eligible to claim any tax benefit u/s 80C or section 24. i.e. in all years, only H can claim up to Rs 1.50 lakh in interest payment and 100% of principal or Rs 1 lakh whichever is less.
Case 2 – H and W, both purchases a house with co-ownership of 50:50 and also took home loan jointly in the same proportion. In this case, both H and W can claim the income tax benefit of Section 80C and Section 24 in equal proportion. i.e The complete interest payment and principal will be divided equally in H &W and both can claim separately Rs 1.50 lakh u/s 24 and Rs 1 lakh or 50% of principal whichever is less
Case 3 – H and W both purchase a house with a co-ownership of 75:25 and also took home loan jointly in the ratio of 50:50. In this case, both H and W can claim income tax benefit of Section 80C and Section 24 in the ratio of borrowing. i.e The interest and principal payment will be divided in the ratio of 50:50 and both H&W can claim income tax benefit in this ratio only, up to the maximum limit allowed.
Please note that in all the above cases the tax benefits that have discussed are on the self-occupied house. In the case of letting out or deemed to be let out the house, No principal payment but 100% of interest payment can be claimed under section 24 by both the co-owners in the ratio of their borrowing.
Advantages of having a Joint home loan
1. One major advantage is the income tax benefit that gets divided in co-owners.
2. The second advantage is the increases in chances of getting the loan and also increase in the loan eligibility.
Disadvantages of having Joint home loan
1. The self-occupied property is the one which is occupied by the owner for self-residence, and if there’s any other property purchased will be treated as “Deemed to let out” and taxed accordingly. So in the case of joint home ownership, if any of the co-owner purchases some other property in the same city will be treated as “deemed to let out”.
2. If any of the co-borrowers has bad credit behaviors due to which repayment of the home loan goes irregular, this will affect the credit score of other co-borrower too.
3. If due to any dispute, any of the co-borrowers refuses to repay the loan, please be warned that as per loan schedule the liability to repay the loan is joint and several on the part of each co-borrower. This means all the co-borrowers are liable to pay up to as much as all repayments. A lender may also sue both the co-applicants to recover the dues.
4. We all are emotional beings. Under the lure of getting access to high credit eligibility which may help in buying a big house, we tend to forget how the EMI burden will going to affect the other goals
Though Banks provides loans to spouses with no compulsion on having co-ownership, it is advisable for both spouses to have some ownership. Before becoming a co-applicant make sure that you have some percentage of ownership in the property. Also, if you are co-borrower, you could perhaps draw up and sign an agreement with your spouse on splitting the liability. This is to avoid any dispute in future.