Article

Joint Home Loan
November 27 , 2012

Joint loans are single loans made to two or more borrowers. With multiple co-applicants there is more income to share the EMIs with and possibly more tax benefits to avail. It may also make it easier to qualify for a bigger loan if other co-applicants have better credit history and income backup. Joint loans are commonly provided by home loan lenders.

Why joint loans make a good idea

The first reason why you would want to consider taking a joint home loan is it might make you eligible for a bigger loan. Lenders limit the loan to amounts such that EMIs don't run over a certain percentage of your net monthly income. With bigger pooled income you can clear their EMI to net income criterion.

Another good reason to go in for a joint home loan even if income is not an issue is all co-applicants can make use of tax deductions available on home loan repayment. Under section 80 C of I-T Act Rs 1 lakh can be deducted from personal income tax for principal payment on home loan (Rs 1 lakh is overall cap for all deductions under this section). Another Rs 1.5 lakhs can be deducted on interest payment on home loan, under section 24.

Each co-applicant can save tax by the amount specified above provided they are also co-owners. In case of joint home loan taken by spouses, each can save up to 2.5 lakhs every year on taxes.

Who can co-apply in a joint loan

Co-applicants are usually spouses. Lenders also let a parent with a source of income to be a co-applicant. Sometimes they may allow brothers to be co-applicants. Lenders do not agree for sisters or a brother and sister to be co-applicant since in our tradition sisters leave the home and move on after marriage. The spouse or parent can co-apply even if they are non-salaried; they only need to have a steady source of income.

It is essential that all co-owners of the home be co-applicants for the loan. However all co-applicants being co-owners is not mandatory. The rationale is to get all who own a stake in the asset to share in the loan liability so the lender has absolute right over the asset until its dues have been cleared.

Sharing ownership and loan responsibility

While applying for a joint loan co-applicants must sign an agreement mentioning how they will share the loan payments. Loan sharing arrangement usually reflects ownership of the applicants. Take the case of spouses for instance. If their share in total income is in 55-45 ratio their ownership can be split as 55-45 and the funding can also be broken up in the same proportion. Since tax benefits are involved it will prove useful to let applicants with higher income take on higher chunks of the loan.

For tax purposes it is better to make repayments from separate bank accounts as in this case all applicants would get separate certificates for filing tax returns. However if making payment from a joint account is preferred co-applicants can make copies of the certificate and back it with the sharing agreement.

Lenders may not accept more than one payment made proportionately for each EMI. In case of spouses they may instead make few complete EMIs from each of their accounts every year. Co-applicants get tax benefits for their share of interest and principal repayment.

To conclude

Going in for a joint loan may help you save much on taxes. It might also stretch your loan amount eligibility. Co-applicants should structure their share in the manner that maximizes their tax benefit.

Being a co-applicant may not be the best deal in case you intend to buy another home. According to present income tax norms, any one house is considered self occupied and the other is taken to be let out. Tax has to be paid on rental income from the one let out irrespective of such income is being generated or not. Wealth tax also comes into the picture here. Only one house is exempt from it. Wealth tax must be paid for the other house.

Consider all these before deciding to co-apply for a joint home loan.

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