Joint home loans: Know the pros and cons

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People often take a home loan in a lifetime because the amount is quite high and the repayment tenure is longer compared to any other type of loan. Many people even jointly take a home loan with spouse or sibling or even parent to get multiple advantages. There can be three-four applicants for a single home loan. Various lending institutes usually give this option, especially for big ticket-size loans. Joint home loans can be obtained by an applicant along with earning member of the family that includes his/her spouse, sibling or even parent. Money9 gives you a list of pros and cons of joint home loans.

PROS

Share of EMI: One of the biggest benefits of a joint loan is that the responsibility of repaying the EMI is equal between the primary as well as the secondary borrowers, irrespective of the ratio or nature of ownership of the property. It will ease the burden of repayment, as home loan repayment tenure generally varies from 10 years to 30 years.

Higher loan amount: Bank want EMIs not to exceed 50%–55% of the applicant’s monthly income. A joint loan application increases the amount of money you can borrow by almost two or three fold, provided the co-applicant has a steady source of income.

With a higher loan amount, you can buy a house according to your desire.

Tax holiday: In the case of a joint loan, co-borrowers need to be co-owners as well to avail of tax benefits on the home loan under section 80C and section 24. 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 up to Rs 2 lakh under section 24 of IT act. Being a joint borrower, both the persons will get tax benefits from the home loan.

Down payment: The down payment should be determined based on the applicant’s savings. Banks usually require down payments of between 10% and 30% of the property value.

For a joint loan applicants, down payment is higher and the EMI is also less and equally distributed among all borrowers.

CONS

In case of default: Both applicants are equally liable for a joint home loan. If one applicant stops paying EMI, the impact is felt by the other applicant. The other one will have to make up for the deficit or they will be jointly defaulting on the loan.

Both applicants’ credit scores and credit histories will be negatively affected even if one defaults.

Transfer of burden: If one of the co-borrowers loses his/her job or faces a financial emergency, the repayment burden automatically falls upon the other partner. This can put an intense financial strain which may lead to EMI defaults.

Separation or death: If a couple decides to part ways in future or a co-borrower opts out of repaying the loan, the responsibility to pay the loan rests with one applicant. Inability to repay can lead to legal repercussions for both borrowers.

To avoid this, you can sign an agreement mentioning each partner’s share in loan liability beforehand.

Also, if any person from the joint borrowers passes away then the burden of EMI falls entirely on the surviving partner.