Opt for a Joint Home Loan to Reap These Benefits

Posted by mymoneymantra on May 5th, 2018

Owning a house is a great feeling. It is a symbol of social status and accomplishment. Considering the cost of real estate today, it is a significant investment. As the amount involved is tremendous, it requires excellent planning. Our earlier generation did not have the facility of Home Loans. Hence, they used to save and dip into retirement corpus like Provident Fund accounts to raise funds to buy a house.

The times have now changed with banks becoming liberal in approving Home Loans. Therefore, the average age of the Home Loan borrower has come down drastically from the mid-40s in the last decade of the 20^th century to the late-20s today. It is also the age of double income homes. Hence, it is better to apply for a Home Loan in joint names. Let us look at the benefit of opting for a joint Home Loan.

·         Higher Loan Eligibility

Your Home Loan Eligibility depends on your income and repayment capacity. When you have two incomes, the repayment capacity automatically increases. It can result in higher loan eligibility. When you have higher entitlement, you can opt for a larger house. Alternatively, you can choose to have a home in your preferred locality. In short, you can have a higher investment.

·         Higher Down Payment

You have joint finances thereby ensuring that you have a better saving capacity. It can translate into making a higher down payment. Banks are okay with 20% Home Loan down payment. However, you are free to contribute more and reduce your Home Loan liability.

·         Share Loan Repayment

When you have joint applicants, they share the repayment liability as well. Hence, your share reduces considerably. It can result in more significant savings that you can use for home improvement, interior decoration, and so on.

·         Special Interest Rates for Women Co-applicants

Some banks offer a concessional rate of interest to women customers that are usually lower by about half a percentage point than the standard rate. The woman has to be the sole or joint owner of the property to avail this special concession. A difference of even half a percentage point in the rate of interest can save you a lot of money.

For instance, the EMI (Equated Monthly Instalment) on a Home Loan of Rs. 50 Lakhs @ 9% for 20 years is Rs. 44,986. You end up paying nearly 58 Lakhs as interest over the entire tenure of the loan. A woman co-applicant gets a benefit of 0.5% in the interest rate. Hence, the EMI in such a case works out to Rs. 43,986. The total interest payable amounts to Rs. 54 Lakhs. Thus, you end up saving Rs. 4 Lakhs in interest payment.

·         Higher Tax Benefits

The Government of India has announced income tax concessions to individuals under various sections of the Act. Sec 24 of the Income Tax Act 1961 allows an individual to claim a tax deduction up to Rs. 2 Lakhs on interest payment of the Home Loan. Sec 80C enable a tax benefit up to a maximum of Rs. 1.5 lakhs as repayment of the principal component. In case of joint applicants, both the applicants can claim this deduction. Therefore, the collective tax benefits are higher than in the case of a single applicant.

Also Read: 8 Financial Tips if You’re Planning to Buy Your Dream Home

Who Can be a Co-applicant?

Usually, the spouse is the co-applicant. Parents and earning children can also be co-applicants. Banks do not encourage taking siblings as co-applicants because there can be disputes at a later stage. There is a difference between a co-applicant and a co-owner. It is not necessary for the co-applicant to be the co-owner of the property. The co-owner has to submit their income documents for determination of Home Loan eligibility. However, both the co-owner as well as the co-applicant has to execute the loan documents.

When Should You Not Opt for a Joint Home Loan?

You should avoid applying as a co-applicant when -

• You have a low credit score
• You are already repaying an existing loan as per your maximum eligibility
• The cost of the property is low, and you intend to purchase a bigger house shortly
• Your age is closer to the retirement age

Applying for a Home Loan in joint names is beneficial in many ways. It not only improves your loan eligibility but also enables you to save more tax. You share the responsibility of repayment. You can even end up acquiring a bigger home in your preferred locality. Today, Home Loans in joint names have become the norm because of the higher levels of disposable income.

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