Whenever we plan to take a loan there are ‘n’ number of factors that we need to consider before finalizing the same like home loan offers of banks, processing fees of bank, EMIs, ownership criteria etc.. Out of which one of the important factor is ownership criteria where you need to decide ‘Should the home loan be in a single name or in joint name?’. As the answer to this question can make a big difference so lets have a clear understanding of pros and cons of joint home loan.
Benefits Of Joint Home Loan
- Get Higher Loan Amount : Banks sanction loan amount according to the monthly income of the borrower. The foremost reason for keeping this sanction criteria is to ensure the borrower will not default in normal circumstances. The bank approves and divide the total loan amount in such a way so that the ratio of equated monthly installments (EMIs) to borrowers monthly income is not so high.
So to get higher loan amount you need to show your capability of paying higher bank EMIs on time. For that you need to show your higher monthly income. In such a case you can club someone else income to your income and get higher loan sanction. Lets take it in a simple way, usually people prefer to take home loan with there spouse, so in such a case bank will club income of both the applicants and thus can sanction a proportionally higher loan amount.
Example : Lets say you have annual income of Rs 7 Lakhs per annum and you have applied for a home loan on individual basis and bank have sanctioned a home loan of Rs 25 Lakhs for 20 years.
If you will take the loan in joint names with your spouse, who earns Rs 6 lakhs per annum, then you are entitled to get a home loan of Rs. 45 lakhs for 20 years. As now together you have potential to pay more so you can get higher loan amount.
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Extra Income Tax Benefits :- As we know repayment of loan amount attracts income tax benefit. So if you are taking a joint home loan and pay the EMI together then both the applicants can claim income tax benefit on the part of loan amount repaid by each of the applicant during the financial year.
The best part is that the upper limits of tax benefit (Rs. 1 Lakh for principal repayment under Sec 80C and Rs. 1.5 Lakhs for interest payment under Sec 24) apply individually. That is, both you and your spouse (or co-applicant) would be able to claim IT benefits upto these limits.
Example :- Let’s say you and your co-applicant earn Rs. 10 Lakhs each per annum. For the repayment of home loan you both need to pay Rs 100,000 per annum as principal and Rs 1,50,000 as interest amount.
If the home loan is in your name, both these deductions (principal and interest amount) would be available only to you. Thus, your taxable income would be:
Rs. 10,00,000 – Rs. 100,000 – Rs. 1,50,000
Which is Rs. 7.50 Lakhs.
The income tax saving would be:
Rs. (50,000 * 20%) + Rs (200,000*30%)
= Rs. 10,000 + 60,000
= Rs. 70,000
In the other case if the home loan is in joint names, and both you and your co-applicant repay the EMIs either equally or in some defined ratio, then both of you would get tax benefits according to the repayment proportion. Lets for example you and your co-applicant repay EMI equally
Thus, your taxable income would be:
Rs. 10,00,000 – Rs. 50,000 – Rs. 75,000
Which is Rs. 8,75,000
The income tax saving would be:
Rs ( 1,25,000 * 30%)
= Rs.37,500 each, or Rs. 75,000 total – an extra tax saving of Rs. 5000 in this example
(Note: The calculation uses IT slabs applicable to FY 2011-12. To know about the applicable tax slabs, please read “Income Tax (IT) Slabs / Brackets – FY 2011-12 AY 2012-13”)
Disadvantages Of Joint Home Loan
As such there is no disadvantages of taking home loan in joint names but there are few things you should know before going to take joint home loan.
If you and your spouse are working and planning to take a home loan for a housing property then in that case you got to have two options either take home loan in the name of a single applicant or jointly. If you go for a joint loan then you will have to take your spouse as co-owner in the property (which is a precondition for availing joint home loan.)
As per the income tax law if you are the owner of one property in your name and want to buy another property then one property will be treated as self occupied and another will treated as let out. You are liable to pay tax on the rent amount (@market rate) even if the property is not actually let out on rent.