ET Bureau | Nov 10, 2014, 08.00AM IST | Economic Times
Deepak Gupta and his lawyer wife, Jayshree, have decided to buy a house after staying in a rented flat for seven years. Based on his current income, Deepak is eligible for a smaller loan. However, both of them are keen on a bigger house in the same locality. The lender suggests a joint home loan, and the Guptas want to know the benefits and risks of a loan with the spouse?
Joint debt has become a part of the household finance these days, but one must take into account a few things before opting for it. First, being a co-borrower for a house does not automatically make one a co-owner. Second, repayment of a joint home loan is the collective responsibility of both the borrower and co-borrower and each of them is liable for the loan.
A joint home loan also means eligibility for a higher loan amount. The lender takes into account both their incomes to determine the eligibility of loan, and this can enable the Guptas to buy the bigger house that they want. Both can enjoy the tax benefit available for a home loan and individually claim deduction. This is for both repayment of principal under Section 80C and interest repaid under Section 24 of the Income Tax Act. This brings down the family’s total tax liability. However, co-ownership is mandatory to avail of tax benefits.
However, there may be problems for Guptas in case of divorce. If the spouse who is moving out of the house refuses to pay the loan, or if one of them files for insolvency, or if one passes away, it becomes the co-borrower’s responsibility to repay the entire loan. In the event of a default, there could be legal action against all joint borrowers.
The repayment record of a joint home loan reflects in the credit score of all co-borrowers. Hence, a default in payment by the partners can impact the eligibility for a loan in the future. In cases of amicable separation, the Guptas might want to convert the joint home loan to a single loan, but the lenders will not permit it if the eligibility criteria comes under stress and could ask for an alternate co-borrower.
While joint home loans offer benefits, precautionary measures must be taken to protect one from associated risks. Before Jayshree signs as a co-applicant, she should ensure the ownership right to property. The couple should also take separate term plans to reduce the financial burden on one spouse in case of the other’s demise.
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