Their first wedding anniversary was a month away when Sheetal and Kunal bought an apartment in Powai, Mumbai.
Many friends admired the young couple’s capacity to buy a premium apartment. Actually, the couple merged their earning capacity to be eligible for the Rs 75 lakh loan. They had raised a joint loan. But not long after the monthly payments started, marital troubles surfaced and the couple split.
Who will re-pay the home loan? And who will own the home?
Situations like these aren’t unusual today and therefore, women need to know the implications of taking a joint loan with their husbands. In the above case, the property was registered in the name of Kunal and Sheetal didn’t get a share of it when they parted. Yet, she has to continue to pay her part of the EMI, or Equated Monthly Instalment because she also signed on as a co-borrower.
Benefits of a joint loan
Under usual circumstances, taking a joint loan does have benefits. For one, when banks sanction housing loans, they evaluate if the borrower’s income is enough to pay back the loan. If a single income isn’t enough to cover the loan amount, the borrower will be encouraged to bring in a co-applicant. Many young couples today opt for a joint housing loan to be able to afford a better home. But the flip side of stretching your budget this way is that, it robs both of you of the flexibility to take a mid-career break or switch to a lower paying job.
Many couples also opt for a joint loan as it gives them additional tax benefits. For instance, if you take a joint home loan, both you and your husband can individually claim deduction under Section 80C and Section 24 of the Income-Tax Act towards the principal and interest deductions, says Vineet Agarwal, Director, KPMG. That is, while calculating your taxable income, both you and your husband can deduct up to Rs 1 lakh on principal (Section 80C) and up to Rs 1.5 lakh on interest (section 24) paid on the loan in that year.
But do note that this benefit is only if the home is registered in both your names. Being a co-applicant to the loan alone, doesn’t get you this tax break.
Now, for the flip-side
While signing on as co-applicant, however, it is also essential for you to know your liabilities. When the primary borrower defaults, has to file for insolvency or passes away, it becomes the co-applicant’s responsibility to settle the loan in full, says K.H. Viswanathan, Executive Director, RSM Astute Consulting Group- a legal consulting company.
And do note that the repayment record on joint loans counts for your CIBIL score. The Credit Information Bureau (India) Ltd maintains information of all individuals’ payments relating to loans. It gives scores to individuals based on their credit history. Irregularity in payment by a partner or co-applicant can impact your eligibility in the future for a loan.
So ask yourself if you will have enough money to pay the full EMI yourself in case of an unexpected event. The math is simple: From your monthly income, subtract expenses on fixed commitments, such as school/tuition fees, other loan payments, house rent, food, medicine and emergencies. What is left is the disposable income to pay the EMI.
Put it in writing
Before you sign as a co-applicant in a home loan, make sure that you get a right to the property as well. Registering the house in joint names will get you additional tax benefits as mentioned earlier and your share in the property also becomes undisputable.
The couple taking the loan should ideally take separate term life covers to reduce the financial burden on the other person in case of their demise.
Also, if you are a co-borrower, you could perhaps draw up and sign an agreement with your spouse on splitting the liability. This will avoid any clashes in future. Premnath Rai, Partner, PRA Law Offices, says that in a joint loan, it is possible to state in the loan agreement itself that the wife’s or husband’s liability as a co-applicant shall not exceed a given per cent of the principal amount of the loan. You can also specify the absolute amount on account of interest that will be payable at any time. But if the lender disagrees to such a clause, then, the husband and wife can draw up an agreement separately by putting the terms in a stamp paper and signing it, says Rai. This agreement, however, will not be binding on the lender; it will be useful only when there is a dispute between the co-borrowers.
Source: Rajalakshmi Sivam, http://www.thehindubusinessline.com
