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A home loan is usually the biggest liability in an individual's life, and thus needs to be carefully taken. Sometimes you may want to buy a house of greater value, but you may not be eligible for a huge amount of loan from the bank. This is where the concept of joint home loans comes in handy. A joint home loan is a loan which is taken by more than one person. Let's look at some features of a joint home loan, and why it can be advantageous to you.
Co-Borrowers: A co-borrower is a person with whom you take the home loan jointly. This is different from co-owner, which means a person who has a share in the property. Usually banks insist co-owners to be co-borrowers of the loan. However, the reverse is not necessary. In India, a home loan can have upto 6 co-borrowers. Usually a joint home loan is taken by spouses, or parent and child. You cannot take a home loan jointly with your friend or colleague or an unmarried partner.
Tenure of the loan: If the co-applicants of the joint home loan are spouses, then the maximum loan tenure can be upto 20 years or 25 years, depending on the housing finance institution. However, in case the co-applicants share a parent-child relationship or are siblings, then the maximum term is restricted to 10 years in most cases. In case of a joint loan taken by a parent and child, if the repayment is linked to the parent's income, then the maximum loan tenure is restricted to the retirement age of the parent.
Documentation: A joint home loan requires both the applicants to furnish the necessary Know Your Customer (KYC) documents. This includes address proof, ID proof, income proof and the bank statements of both the applicants, as well as the proof of co-ownership of the property.
Repayment: Although the loan is taken by more than one person, the EMI payment will need to be made only by one of the borrowers. The payment can be made from a single or joint account of one of the borrowers. The borrowers can also choose to share the number of EMIs between them in the whole year. However, it must be remembered that all co-borrowers are jointly and severally liable to repay the loan. This means if one of the borrowers refuses to pay the loan, the other borrower is liable to pay it.
Why you should opt for a joint home loan?
Ability to borrow a higher amount:
One important reason why you should opt for a joint home loan is to be eligible for a larger loan amount. For example, assume you would like to buy a property worth Rs. 1 crore. The bank is ready to fund 80% of this amount which is Rs. 80 lakhs. However, you must meet the eligibility criteria of the bank. This means, your income should be sufficient according to the bank's stipulations, for you to be eligible to get Rs. 80 lakhs as the loan. Suppose your income does not meet this requirement, then you will be forced to look at a house which costs lesser. However, if your spouse is working and if you choose to take a joint home loan, then both your income as well as your spouse's income will be considered by the bank to determine the eligible limits of the loan.
A more important reason why you should opt for a joint home loan is to receive additional tax benefits. This is the reason most working couples opt for a joint home loan, as the tax liability is reduced significantly at the family level. The Indian Income Tax Act allows both principal repayment as well as interest repayment as eligible deductions from your income. Principal repayment falls under the ambit of Sec 80C and interest repayment comes under Sec 24 (b) of the Act. Thus an individual can claim upto Rs. 1 lakh on principal repayment and upto Rs. 1.5 lakh on interest repayment in a financial year. This is for one individual.
However, if you opt for a joint loan for a self-occupied property with your spouse, which is to be held in equal proportion, then both you and your spouse can claim a deduction on the principal and interest repaid separately from both your incomes, to the extent of your share in the loan. Let's understand this with an example:
If you take a home loan in your single name, then the maximum deduction you can claim is Rs. 1 lakh on principal repayment and Rs. 1.5 lakh on interest repayment. On the other hand, suppose you take a joint home loan. If the total principal repaid during the year is Rs. 2.5 lakhs and the total interest repaid during the year is Rs. 4 lakhs, then both you and your wife can claim upto Rs. 2 lakhs on principal repayment (Rs. 1 lakh each) and Rs. 3 lakhs on interest repayment (Rs. 1.5 lakhs each).
As seen above, a joint home loan results in more savings collectively. Thus it always makes sense to opt for a joint home loan.
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