A home loan often means all the more caution with money management and monthly budgets. It also means some smart thinking on the part of the individual who is taking up the home loan.
Apart from things like evaluating fund flow, future job prospects, negotiating a pay hike, understanding loan eligibility, maintaining a good credit score and getting the best interest rate in the market, one also needs to consider the possibility of opting for a joint home loan.
Who can opt for it?
Banks insist that all co-owners of the home must be co-borrowers in a joint home loan.
- One could team up with parents or the spouse to be able to maximize the benefits of a joint home loan.
- Some banks allow brothers to take a joint home loan provided they opt to become co-owners of the property.
The exceptions are sisters, friends or unmarried couples living together as most banks generally don't allow them to opt for a joint home loan.
Key advantages of a joint home loan
a. Banks do not allow a person to borrow to an extent where their EMI exceeds more than around 40-50% of their monthly income. This ensures that there is no stress on an individual's monthly budget. Hence, when the incomes of all the joint applicants are combined to decide the loan eligibility, the result is a better loan amount for a better home.
b. All co-applicants are eligible for simultaneous tax rebates under Section 80 C for principal repaid and under Section 24 for interest repaid. However, these tax deductions are capped at Rs 1 lakh (Rs 100,000) for the principal repaid and Rs 1.5 lakh (Rs 150,000) for the interest repaid. Do note that this is applied for each individual loan applicant thus maximizing the tax benefits on the home loan.
If you and your spouse earn similar incomes, then its best to opt for an equal co-ownership of the property and split the tax benefits of the home loan equally as well.
In case one of you fall under a smaller tax bracket, it is good to let the partner with the higher pay make a higher contribution towards the home loan resulting in a better tax benefit collectively. This would help you optimize the benefits from the tax exemption on principal and interest repaid.
For instance, let us say the principal and interest repayment on your home loan for a given year is Rs 2.4 lakh (Rs 240,000) and Rs 3.5 lakh (Rs 350,000) respectively.
Now, under Section 80C, you can get a maximum tax deduction of Rs 1 lakh on principal repaid and under Section 24 you can get a tax break of up to Rs 1.5 lakh on interest repaid.
However, if you and your spouse have opted for a joint home loan, you would collectively be able to claim a deduction of Rs 2 lakh (Rs 200,000) and Rs 3 lakh (Rs 300,000) on the principal and interest repaid.
Do note that the tax benefits are according to the proportion of the loan. That is, if the ratio of the loan is 70:30, then a loan of say, Rs 50 lakh (Rs 5 million) will be split as Rs 35 lakh (Rs 3.5 million) and Rs 15 lakh (Rs 1.5 million), respectively, and this ratio will be applicable while calculating tax benefits on the interest and principal repaid on this loan.
Also keep in mind, that tax slabs might change according to new budget specifications each year and there could be changes in the gross income as well, not to mention changes in the total principal and interest repaid in every new year of the home loan.
In this respect, the interest repaid will become considerably lesser and the principal repaid will become higher during the latter years of the loan.
For tax purposes, it is best to procure a home sharing agreement, detailing the ownership proportion in a stamp paper, as legal proof for ownership.
So taking a joint home loan has the significant twin benefit of increasing your loan eligibility and maximizing your tax rebate.
Do remember that though the banks insist that all co-owners of the property should also be co-applicants in a joint home loan, the reverse need not be true.
