JOIN USThere has been an observed demand for residential units from young working population in the range of 25-35 years, which has been supported by increasing urbanisation and resulting nuclearisation of families.
Young people are showing a definite shift towards “own” over “rent”, thereby leading to “early decision to housing” mindset. This trend is observed across the geographies and is more relevant in semi-urban/urban locations.
The funding problem: However, since they are early into professional careers, more often than not, they do not possess enough savings from own sources for outright purchase of the unit. Further, even if they have some savings and look for financing for the balance amount, the standalone income levels might not be enough for getting eligibility for desired loan amount for the purchase of a selected house. They might have to forgo the shortlisted property or settle for the second-best option or may have to defer the purchase till an opportune time. This makes the overall objective of owning an own home early into the lives a difficult proposition.
Solution through joint home loans: In case of married couples where both husband and wife are working, joint home loans offer a panacea to the financing problem. In other words, both spouses jointly apply for a home loan and hence, both of them become co-borrowers. Here, income levels of both spouses would be considered and this clubbing of income levels helps in enhancing the loan eligibility. Responsibility of repayment of monthly installments in such a loan rests jointly on both husband and wife. To extract the best benefits out of the joint home loans, it is recommended that both spouses become joint owners of the house intended to be funded and define their percentage contribution towards the payment of monthly installments.
Apart from married couples, joint home loans are generally offered to blood relatives (parents, children, siblings, etc). Generally, working members of the family (father, son, mother, son, etc) apply for joint home loans as their income is taken into consideration for eligibility calculation. Repayment of the joint home loan is the responsibility of all borrowers.
Advantages in female ownership: Female ownership in the property brings relief in stamp duty and registration charges in several states in India, helps in getting a better interest rate on the loans from selected financial institutions, and also helps in optimising the tax relief that comes along with it. Several states (Gujarat, Delhi, Haryana, Uttar Pradesh, Rajasthan, Odisha, etc) offer relief ranging from 1-2% in stamp duty and registration charges in case the first owner of the property is female. In fact, the Delhi state even offers 1% relief on the stamp duty for married couples jointly owning the property. For availing such a relief, it is important that the residential unit being purchased is in the name of the female (first/joint owner of the property, depending on the states’ jurisdiction).
Benefits of Joint Home Loans
Lower age of young married couples work in their favour when they apply for a home loan to a financial institution as they can get loan for a higher tenure (20, 25 or even 30 years in some cases). The longer tenure helps in rationalising the monthly installments
Selected financial institutions also offer lower interest rates (lower by 50-100 bps) on home loans, where the female is a primary applicant. Married couples can avail such options which will help in reducing the monthly installments towards repayment of home loan
In cases of joint ownership of residential property by spouses which is funded by a financial institution, both co-owners would be applicants in the home loan. In case, both spouses are working, one may go for a joint home loan where besides the loan eligibility getting enhanced due to clubbing of income levels, it brings tax benefits through income tax deductions under section 24 (up to Rs 2 lakh on repayment of interest) and section 80c (up to Rs 1.5 lakh on repayment of principal amount) of income tax act which can be claimed by both spouses in proportion to the extent of their contribution towards repayment of loan
One may consider his/her tax bracket individually and can decide the contribution percentage in repayment of home loan. For eg. A person having a higher tax bracket may opt for higher percentage contribution in the repayment in joint loan. Such a planning helps in optimising the total tax outgo for the married working couple
The certificate issued by the financial institution, showing the split between principal and interest for the EMI paid, is required for claiming tax benefits
One may note that a spouse who is not co-owner in the property, but is a co-borrower in the joint loan, would not be able to avail the tax benefits
Putting safeguards: All co-borrowers have collective responsibility for timely payment of monthly installments of joint home loan. Default in joint home loans due to unforeseen incidents like divorce, death, medical conditions, and job loss of the borrower, and so on, makes the other co-borrower liable to ensure the servicing of loan on time. For the financial institution, it doesn’t matter who is contributing how much towards the repayment as long as the loan is serviced on time. In case of a dispute, accidental death, divorce or insolvency, which may lead to default on home loan, the lending institution can proceed with the recovery process against all borrowers. To safeguard against the above type of events and avoid dispute at a future date, it is recommended that the co-borrowers plan the payment terms of the joint loan (percentage contribution, payment type, account type (single/joint) and the period) with the lending institution.
Also, the co-borrowers may proactively enter into a legal agreement (one that is honoured in the court of law) which clearly specifies the course of steps towards servicing the loan and define liability in unambiguous terms so as to avoid disputes among co-borrowers. One may also consider taking term insurance for the borrowers, which alleviates the situation arising out of death of or medical treatment, or other contingencies.
One may avail professional services of a legal expert who can give end-to-end consultancy with regard to the entire process of joint home loans and helps them execute the same in a hassle-free manner, safeguarding interests of all interested parties.
(The writer is COO at AHFCL)