Today it is common for husband and wife to be joint borrowers for a home loan to enhance their overall loan eligibility. Less common are the joint home loans with parents/children and even less common are joint home loans with siblings (brothers and sisters). In fact joint home loans with friends are rare enough to be virtually unheard of.
And live-in and same sex couples can’t have home loan.
Ever wondered why this is so? Read on for answers to these interesting facts.
As we know that joint loans increase loan eligibility, simply because the income of the two borrowers is always more than one, hence the loan eligibility is higher.
The following example will illustrate this point:
The net monthly income of Mr. Sharma (34) is Rs. 30,000 per month and Mrs. Sharma (32) earns a net salary of Rs. 35,000 per month. Now if Mr. Sharma was to take the loan entirely on his own he would be able to get a 20-year loan of around Rs.12,00,000 to Rs. 15,00,000 at an interest rate of 9%. Now if the couple were to take the loan together as joint borrowers they will be eligible for a loan of around Rs. 26 lakhs to Rs. 32 lakhs.
By using pooled incomes for calculating loan eligibility, the lender is effect involves both the parties. The pooled incomes are combined to take care of all expenses including the home loan installments.
The joint borrowers by definition have to be either spouses or close blood-relatives. Banks rarely, if ever, extend this concept of pooling of incomes to other relations/friends. Some banks allow parents and children to be co-borrowers, while a smaller number of banks allow siblings to be co-borrowers. A smaller percentage of banks allow joint loans for brothers and a more diminished number will allow two sisters or a sister-brother duo to opt for a joint home loan.
The basic premise behind laying these restrictions is that in the event of some dispute arising between the joint borrowers, the income stops getting pooled and there may be a problem in paying the loan installments.
Of course, disputes may arise between spouses/allowed close blood relatives too. But banks are able to quantify these risks and factor them in while computing the cost of doing business. The bank is unable to estimate the extent of this risk for any other relationships breaking up and hence do not allow them to be joint borrowers. For this reason, neither friends, friends in a live-in relationship or same-sex couples can normally get a joint home loan.
Let us look at some of the other issues that arise from being such joint borrowers :
1) Legal Issue:
In legal terminology the liability to repay the loan is joint and several. In English it means that the bank has a choice to collect the loan from any of the joint borrowers for the full loan amount irrespective of any internal arrangement/understanding that the joint borrowers may have between themselves.
- Tax Issues :
- It is necessary to be an owner or a joint owner to claim any tax benefits. There are many cases where a husband becomes a joint borrower to enhance loan eligibility but the property is in the sole name of the wife. Another instance can be when the property is in the name of the father and/or the mother but the son is a joint borrower. Even though he may fully discharge the loan liability to the bank from his own bank account, he will not be able to claim any tax benefits since he is not a joint owner of the property. So just being a joint borrower is not enough to claim deductions for tax purposes on home loan repayments. You have to be joint owner too.
- Each joint owner can get a deduction to the extent of his share in the loan. It makes sense to document the shares of each of the joint owners through some simple document right at the inception. A sample draft of such simple agreement can be downloaded from this link.
- Though not strictly necessary it is advisable to keep a correct account of the liability of each of the joint owners with each of them contributing his share into a common account from where the payment to the lender can be made.
- It is not advisable to change the share in the loan of each party from year to year to suit your tax requirements.
- If the property is self occupied the maximum limit of Rs. 1,50,000 for deduction of interest payable on a loan taken to acquire/construct the property is available individually to each joint owner to the extent of his share in the loan. In simple English it means that all of them can make separate claims upto Rs. 1,50,000 each.
So joint home loans can assist a lot of consumers to fulfill their dreams of owing a house.
Go for it if you are eligible. Best of luck!