While home loans have improved the affordability of purchasing your dream house, but on occasions where the need for funds is substantial or you fall short of the eligibility criteria, opting for a joint Home Loan can seal the deal for you.
In a joint home loan, you have a co-applicant who can be your immediate family member - father, mother, children, or spouse. In a nutshell, there is more than one applicant in a joint Home Loan.
A joint home loan brings multiple benefits to the table. Some of the prominent ones are:
Higher Loan Eligibility
Lenders closely gauge your eligibility before disbursing funds. A co-applicant significantly enhances your eligibility as both your incomes and creditworthiness are pooled together to calculate your eligibility.
Note that the lender considers the income level of both applicants in such a case. It also allows you to avail more funds towards buying your home.
Lower Rate of Interest
When you add your spouse or mother as a co-applicant in a joint home loan, you can avail a slightly lower rate of interest. This is because most lenders lower the rate of interest for women borrowers, which can range from 10 to 25 bps (0.1% to 0.25%). As Home Loan is a long-term commitment, it results in significant savings.
In a joint home loan application, both the applicants can avail home loan income tax rebate towards the payment of principal and interest. This entails higher tax benefits.
The principal amount paid towards a home loan qualifies for tax exemption under section 80C of the Income Tax Act, 1961. The maximum deductible amount is INR 1.5 lakhs.
Similarly, the interest paid qualifies for deduction under section 24, which is INR 2 lakhs (max). When you jointly apply and pay EMI towards a home loan, both you and your co-applicant can individually claim the deductions while filing your IT returns. So, as a family, the combined savings towards principal and interest are INR 3 lakhs and 4 lakhs.
Conditions to Claim Joint Home Loan Tax Benefits
However, certain conditions need to be fulfilled before both applicants can avail tax benefits on Home Loan. These are:
You should be the property's co-owner: When a joint home loan is taken, often the co-applicant is not the property's owner as per the documents. In such a case, you can't claim tax benefits.
You must be the loan's co-borrower: If you are listed only as a co-owner and not a co-borrower, you can't claim tax benefits on Home Loan. The condition is in place because a co-owner may not necessarily contribute towards EMI payment.
The property's construction should be completed: Both borrowers can claim tax deduction from the financial year in which the property's construction is completed. Tax deductions are not available for an under-construction property.
As evident, opting for a joint home loan has multiple advantages. Often times, joint owners pre-pay their entire home loan, also known as foreclosure of loan. This saves joint home loan applicants considerable amount of money. In some case, joint applicants also split the downpayment cost.
However, check your co-applicant’s credit history to be aware of his/her creditworthiness before applying. Also, note that if your co-applicant doesn’t serve his EMIs, your credit score will be equally affected.
It will impact your loan eligibility criteria should you apply for a loan in the future. Read the fine print and go through the terms and conditions well before signing.
Also Read: What Can You Do To Improve Your Credit Score
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