It happens often while scouring for homes, that you feast your eyes on a beautiful apartment and it turns out to be just outside your budget. And since your bank had defined its maximum funding limit, you will have to end up financing too much from own funds.
There is a solution; you can take a joint home loan. The joint home loan, it is not just about higher eligibility, but it also doubles your tax benefit. In fact, this joint home loan tax benefit is one of the key reasons for taking joint home loan.
There is a difference between joint home loan and joint home ownership. Your spouse can be a co-borrower, but need not be a co-owner. However, banks extend certain benefits like concessional rates of interest for women, only if they are co-owners, apart from being co-borrowers.
How a co-borrower for home loan can help –
Here are some of the obvious advantages of having a co-borrower for your home loan.
- By getting a co-borrower, you increase your loan eligibility since the income of both will be considered for calculating loan eligibility
- So, you can buy a bigger home, in a better location and do not have to worry about compromising on your home choice for lack of funds.
- One of the major joint home loan tax benefits is that it doubles your exemption limit. The individual tax benefits on interest and principal can be claimed separately by both.
- Getting a co-borrower is about sharing the responsibility of your new home. It is logical that when you jointly enjoy the benefits of a new home, you must share the responsibility of repaying. More so, if both the partners are earning members.
- Last, but not the least, if your wife is a co-borrower and also a co-owner, then you are eligible for concessional rates of interest on the home loan. That reduces your EMI liability over the life of the loan.
People look at a home as a once-in-a-lifetime investment; and you rather put your best foot forward and leverage your resources in the best way possible.
Co-applicant versus co-owner
By now, it is clear that joint home loan tax benefit as well as higher eligibility for home loans makes co-application a good choice for a home loan. That raises a pertinent question: does the co-applicant of a home loan also have to also be a co-owner?
That is not necessary. The idea of a co-applicant is to offer their income to improve eligibility and derive tax benefits. You can be a co-applicant for home loan and enjoy tax benefits, even without being co-owner of the property. Typically, an immediate family member can be your co-applicant for the loan and they can either be salaried or self-employed. Even NRIs are eligible to be co-applicants.
A co-owner is the joint owner of the property while co-applicant need not be joint owner. While all co-owners of the property have to be co-applicants of the home loan, it is not necessary that all co-applicants be co-owners. However, banks insist that the co-applicant, in the case of women, must be co-owner to be eligible for concessional rates of interest.
Understanding higher tax benefits for co-applicants
Here is how joint home loan tax benefit works. If the man and his wife are co-applicants for the home loan, then both can enjoy the full benefits of tax breaks on the home loan. There are 2 tax benefits in home loan payments.
- Principal repayments are eligible for deduction under Section 80C of Income Tax Act subject to overall annual ceiling of Rs1.50 lakhs.
- Interest on home loan is exempt up to Rs2 lakhs per annum under Section 24 of the Income Tax Act.
As co-applicants to the home loan, both the co-applicants can enjoy the above benefits to the full extent.
Arguments against co-application for home loans
Despite higher home loan eligibility and the joint home loan tax benefit, there are some cases, where co-application for home loans should be avoided.
- If you are eligible for the home loan on your own, a co-applicant is not needed. You can save your spouse’s loan eligibility for a future date.
- If you have a low credit score or if you are already repaying an existing home loan, then co-application may not make a big difference to your eligibility.
- Co-applicant should be preferred when you are buying a property to live in, and not for property you are buying as an investment.
- Also, be clear that responsibility is shared in case of co-applicants as a lack of this may create problems in the case of divorce proceedings in future.
One thing to ensure is that in the case of joint home loans, both have the necessary documents to furnish to the bank and a good credit score. That is when joint co-application for home loans works best.