ATM :: Should you opt for a single or joint home loan?


Adhil Shetty | 28th Apr 2013 | Deccan Chronicle

ATM

A home loan is usually the biggest liability in a person’s life, and thus this decision 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.

CO-BORROWERS

A co-borrower is a person with whom you take the home loan jointly.

This is different from coowner, which means a person who has a share in the property. Usually banks insist co-owners to be co-borrowers of the loan. In India, a home loan can have up to six coborrowers. You cannot take a home loan jointly with your friend or colleague.

LOAN TENURE

If the co-applicants of the joint home loan are spouses, the maximum loan tenure can be upto 20 years or 25 years, depending on the housing finance institution.

However, if the co-applicants share a parent-child relationship or are siblings, the maximum term is restricted to 10 years in most cases.

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. 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 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 per cent of this amount which is Rs 80 lakh. For this, your income should be sufficient to repay the EMI for an Rs 80 lakh loan.

Suppose your income does not meet this requirement, you will be forced to look at a house which costs lesser.

Tax Benefits: A more important reason for taking a joint home loan is to receive tax benefits. This is the reason that most working couples opt for a joint home loan, as the tax liability is reduced significantly at the family level.

The 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 Section 80C and interest repayment comes under Section 24 (b). So an individual can claim up to Rs 1 lakh on principal repayment and up to Rs 1.5 lakh on interest repayment in a financial year. 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, 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 lakh and the total interest repaid during the year is Rs 4 lakh, you and your wife can claim upto Rs 2 lakh on principal repayment (Rs 1 lakh each) and Rs 3 lakh on interest repayment (Rs 1.5 lakh each).

So a joint home loan results in more savings collectively.

Author Adhil Shetty CEO, BankBazaar .com

Source : http://goo.gl/vNCp6

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