Are you planning to take a
loan to buy your dream home ? Instead of opting for an individual loan, you can consider a joint
home loan. A joint home loan will not only help you to share your debt-burden but also allow you to get a higher loan as the income of co-borrowers will be considered. Did you know that a joint loan can be taken by as many as six co-applicants.
WHO CAN BE A CO-BORROWER?Joint home loans can be obtained by an applicant along with his/her spouse, parents or own siblings. "A borrower cannot take a joint home loan with just any person. It is given to married couples or blood relatives such as parents and children," says Suvrat Saigal, director, retail banking, Barclays Corporate India.
Some banks allow brothers to take a joint home loan provided they both are co-owners of the property. A co-owner is a person who has a share in the property and a co-borrower is one who is liable to pay the loan amount. In some instances, banks insist that co-owners of the home are also co-borrower in a joint loan.
VK Sharma, director and chief executive officer, LIC Housing Finance says, "If co-applicants are spouses, co-ownership of property is not mandatory. However, if co-applicants are parents or siblings, co-ownership of property is compulsory."
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Checklist for when applying for loan Friends, sisters or unmarried partners living together are generally not permitted to apply for joint home loans. Sejal Patel, financial planner, Bonanza Portfolio says, "Friends, sisters or unmarried couples can be a co-owner of a property but they cannot be a co-borrower in a housing loan."
"A borrower cannot take a joint home loan with just any person. It is given to married couples or blood relatives."
Suvrat Saigal
Director, Retail Banking, Barclays Corporate India
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When the spouses are the joint applicants, the term of the loan can be a maximum of 20 years, subject to the retirement age of the older applicant. In case the co-applicants are parents and children or siblings, then the maximum term can be 10 years. Also, if the parents income is considered for repayment, then the maximum term may be restricted to the retirement age of the older applicant (in this case that of parent).
DOCUMENTS REQUIREDVK Sharma of LIC Housing Finance explains, in case of of joint applications, know-your-client (KYC) details such as identity and address proof of the co-applicants, income proof and proof of co-ownership of the property are required.
TAXATION bENEFITSFrom a taxation point of view, a joint home loan is also beneficial as all co-borrowers can claim tax deductions under Section 24 of the Income Tax Act against interest repaid and under Section 80C against principal repaid.
Where two or more persons have taken a joint home loan, every assessee (person paying the income tax) can enjoy the tax benefits available under the Income-tax Act, 1961 in respect of the principal and interest paid during a financial year, on proportionate basis.
"The tax benefits that can be claimed would be in proportion of the share that the individuals have in the loan," says Shilpa Patankar, associate director, KPMG.
In case the property for which the loan has been obtained is self-occupied, then an amount up to Rs 1,50,000 is allowed for deduction on account of interest paid under Section 24. Under Section 80C, an individual can claim deduction up to Rs 1,00,000 on principal paid.
After ICICI, HDFC offers home loan scheme with fixed rates "For claiming the deduction against interest payment, the individual should obtain possession of the property. From an income tax perspective, while the provisions for tax benefits remain the same, the total benefits available in absolute terms may be higher in a joint loan as compared to an individual loan," Patankar added.
If a couple jointly apply for a loan for a self-occupied property to be held by them in equal proportion, then both the spouses would be able to claim deduction on the principal and the interest repaid separately from their incomes to the extent of their respective share in the house and the loan.
This would of course, be subject to the overall limits as specified under the act. If the total interest repayment made by them during the year is Rs 4 lakh and the principal repayment is Rs 7.5 lakh, then collectively the couple may be able to claim a deduction under section 80C for principal payment of Rs 2 lakh (Rs 1 lakh each) and under section 24 for interest payment of Rs 3 lakhs (Rs 1.5 lakhs each).
HOW TO REPAY?The repayment process for joint home loan is similar to that of a regular home loan. The payment, however, has to be made through one cheque.
Renu Sud Karnad, managing director, HDFC, explains, "Payment can be from a single or joint account by way of cheques or electronic clearing system (ECS)."
"Another way of repayment could be that the co-borrowers share the number of EMIs between them such that a specific number of cheques can be issued by one borrower and the balance by the other," added Suvrat Saigal of Barclays Corporate India.
There is yet another mode of servicing the EMI - one borrower can pay off all the instalments and thereafter claim refund from the other borrower for his share.
WHAT IF UNDER DISPUTE?What if one of the co-borrowers refuses to repay the loan? Be warned that the liability to repay the loan as per schedule is joint and several on the part of each co-borrower, which means each party would be liable for part of the repayment or up to as much as all of the repayments.
"It does not matter whether the payment is made in the normal course by only one of the joint borrowers as long as the full EMI is paid as per schedule," says Renu Sud Karnad of HDFC.
In the event of a default, the lender will proceed with the normal recovery process which may include a legal recourse against all joint borrowers.
