Have you and your spouse decided to buy a house with the help of a joint home loan? Exciting as the prospect of purchasing a house seems to a married couple, they need to consider both the advantages and drawbacks of taking a joint loan.
While most banks make it mandatory to have a co-applicant for a home loan, some even insist on the co-owner being a co-applicant. However, the reverse may not be true, which means that the co-applicant may not be the co-owner.
The difference between a co-applicant and co-owner, is that the latter has a share in the property, while a co-applicant is simply liable for repaying the loan in case the primary applicant is unable to service it.
- Bigger loan
Compared with an individual loan limit, you will be eligible for a higher loan as a couple. So if your individual eligibility for a loan may be Rs 30 lakh, combined with the spouse’s limit of, say, Rs 20 lakh, your combined loan limit could go up to Rs 50 lakh and you may be able to buy a bigger house.
With several banks offering lower interest rates to women applicants, it could help to have the wife as a primary applicant for the home loan. Similarly, the stamp duty fee for registration of the house is lower for women and couples, varying marginally in different states.
- Tax benefit
A big advantage of taking a joint home loan is the higher tax concession that both partners can avail of. The Section 80C tax benefit of Rs 1.5 lakh on principal amount repaid can be availed of separately by both the spouses. This results in an enhanced limit of Rs 3 lakh.
At the same time, under Section 24, the deduction of Rs 2 lakh on interest paid for a self-occupied house gets hiked to Rs 4 lakh. This means that as an individual, you are eligible for Rs 3.5 lakh tax benefit, while this limit goes up to Rs 7 lakh for a couple.
- Divorce or death
In case of differences or a split between the spouses, loan repayment can become a sore point. If the wife is only a co-applicant and the husband stops paying the EMIs, the burden of repaying the entire loan falls on the wife without the benefit of ownership. Even in case of death, the surviving spouse will have to shoulder the repayment. In case of non-repayment, the lender has the right to seize the assets of a co-applicant.
- Limited share
If the husband dies without a will and the wife is only a co-applicant, she will only get one-third share of the property as a legal heir, since the asset will be split among parents, wife and children of the deceased.
- Eligibility & credit score
If the partners are joint applicants and a spouse refuses to pay the home loan EMI, the credit score of both will be affected equally. Similarly, their eligibility for a loan in the future will be impacted in case of a default.
To ensure that the burden of home loan does not fall on one partner in case of death or divorce, it is a good idea for the primary applicant to buy a term insurance plan and include the home loan liability in the cover.
In anticipation of differences in the future, the spouses should sign an agreement specifying the share of loan liability of each partner in case of a dispute, and have it notarised.