A joint home loan is a loan taken by two or more people with the intent of availing a higher loan amount along with equally shared responsibility of repaying the loan. The co-applicant shares the liabilities and benefits of the home loan with the primary applicant. This co-applicant may be the primary applicant’s spouse, parent, child, or friend.
There are several pros and cons to applying for a joint home loan:
Pros of Joint Home Loan:
Factors like credit score, stable income and such affect the eligibility of an individual to avail of a home loan. Hence, applying with a co-applicant reduces credit risk for the primary applicant and increases his chances of availing of a home loan.
Avail higher Loan Amount:
If both applicants in a joint home loan application are income-earning individuals, this helps in the calculation of home loan EMI affordability. This means the loan amount becomes considerably higher as compared to a single applicant or individual. This offers significant room for budgeting a better home for both.
Let’s look at an example here – Your sights are set on a house that is valued at Rs 40 lakhs, however your income status and bills only make you eligible for a home loan worth Rs 20 lakhs. Here, applying with a co-applicant can help. Both your combined financial status will allow for a larger home loan amount hence giving you access to the house of your choice.
Home loan interest rates can be lowered if one of the co-applicants is a female. Since banks in India offer comparatively lower interest rates on loans given out to women, it is highly beneficial to include a female applicant on a joint home loan application.
Adding a younger co-applicant can help you extend the tenure of your loan, giving you greater flexibility in repayment. A joint home loan can be taken with a child as a co-applicant to increase your loan tenure.
A number of tax benefits are available to enjoy for both the primary and the secondary applicant on a joint home loan. The percentages depend on their contribution towards principal and interest rates of the loan. Tax deductions of upto 2 Lakhs on interest repayment and upto 1.5 lakhs on principal amount repayment can be availed by either applicant. Incase of a rented property, benefit on the entire interest rate can be availed.
Cons of Joint Home Loan:
Longer Documentation Process:
Since a joint home loan involves two or more applicants, the documentation process is usually longer. The lending organization has to verify the credit history of both applicants. Lending organizations also have to make sure that the documents required for home loan are submitted by each applicant individually and ensure that these documents are accurate and not forged. This process can be tedious and time consuming which in turn delays the time in disbursement of the loan.
Share of property:
Co-applicants only get a limited share of property on a joint home loan. Thus in case of untimely death of an applicant without properly documented will, the co-applicant is only left with less than half share of the co-applicant’s. The rest is shared among parents, spouse and children of the co-applicant.
Since a joint home loan offers flexibility or autonomy in sharing responsibility as in who repays what amount, this also means that the credit score of both applicants is equally at stake. Failure to pay instalments of the loan by either applicant will affect credit scores of both applicants on a home loan application.
Separation of loss of a co-applicant:
In case of separation from a co-applicant, let’s say in case of a married couple, the entire responsibility of repayment of the loan then falls on the primary applicant. Same thing happens in case of losing the co-applicant to an untimely death. In such cases, it is always advisable that individuals apply for life insurance in order to avoid unexpected financial burden.
Thus we can see that a joint home loan can be extremely beneficial in many ways for new homeowners, provided one is aware of the risky paths to be avoided. If planned carefully and chosen well, a joint home loan can give aspiring homeowners the opportunity to realise their wishes in a jiffy.