Home loans are a huge commitment with a substantial loan amount and a considerable interest rate. It can be very beneficial to take home loans jointly with your sibling, spouse or parents, as the loan responsibility is shared.
When you take a home loan jointly with your sibling, it can be advantageous in many ways; like, you get a higher loan amount, a lower interest rate, tax benefit for both the applicants and distributed repayment risk. But, it could go wrong too. If one of you fails to contribute towards the loan and it goes bad, both of you will be held liable and both of your credit scores will be affected.
This article highlights the primary pros and cons of taking a joint home loan with your sibling. Read on to know more!
1. Higher Loan Amount
If your sibling is also an earning member, his or her income will also be considered and you can get a higher loan amount. This is particularly helpful if you have a low income and it is not sufficient to qualify for the loan amount you are looking for. Getting a higher loan amount also means that you need to dish out a lower down payment for your home. You are able to afford a bigger and better house.
2. Lower Interest Rate
When you apply jointly, both your credit scores and income will be taken into account, which will effectively decrease the final interest amount levied on your loan. This is due to a lower risk ratio applied to your loan application. Additionally, if your sibling is a woman, you could get the additional 0.05% interest discount given for women applicants.
3. Tax Benefits
A home loan gives you one of the highest tax benefits. Under Section 80C of the Income Tax Regulations, each co-applicant under a joint home loan is eligible for an income tax rebate of up to Rs.1.5 lakh each, on repayment of the principal amount of the home loan, and up to Rs.2 lakhs each under Section 24 of the ITA. The tax benefits are only available on the amount paid by you in the case of combined home loans. The overall tax advantage claimed by all co-applicants cannot exceed the total principal repaid and total interest paid on the home loan in a given year. As a result, the family's overall tax liability would be reduced if the loan was paid jointly. It is vital to emphasize, however, that each applicant should also be a co-owner of the property.
4. Convenient Repayment
Since both of you are going to contribute towards the EMI, it will be comfortable to repay the loan. You might also be able to repay the loan sooner by contributing additional amounts to the loan whenever you have a surplus. This puts less pressure on your finances overall.
Additional Reading : Top 3 Benefits Of Taking A Joint Home Loan
1. Lengthy Documentation Process
Since the loan officer has to scrutinize two sets of documents, the loan application process could get delayed. Both the applicants have to submit their income documents, identity and address proof documents and any other documents stipulated by the bank. They may even require a few additional documents to establish your relationship with the co-applicant which may lead to unnecessary delays and hassles in the process.
2. Unforeseen Financial & Emotional Pressure
Repayment could become a burden if your sibling suddenly stops supporting you financially. Though the loan is taken jointly, there is no onus on your sibling to contribute towards the loan repayment. They may also come upon some unexpected financial distress and could stop sharing your EMI burden. You then have to bear the entire repayment costs by yourself. This could lead to emotional tensions in the family and spoil the peace of the household.
3. Impact On Credit History
Since you have taken the loan jointly, both your credit scores are impacted by it. If the loan is not repaid on time, or if there is a default, it will impact the credit score of both the applicants. You may not be the principal repayee, yet, your credit score will also be affected by defaults committed by your sibling.
4. Death Of Co-Applicant
In case of the death of the co-applicant, you become the sole borrower on the loan and the responsibility of repaying the loan falls on you. This will then add to additional stress on your finances leading to some unpleasant situations.
5. Legal Implications While Selling The Property
As a joint applicant on your home loan, your sibling would obviously be the co-owner of the property. On a later date, when you want to sell the property, you will need your sibling to sign the documents to do that. In case of the death of your sibling, this will need unnecessary problems in the way of legal heir and beneficiaries.
Joint home loans definitely have more advantages for the borrowers. Since it is your sibling, we can safely assume that it is a far better option to get a better loan amount and lower interest rates on your home loan. However, it is advisable to list out all the provisions of the home loan on paper and weigh in the pros and cons of each option before you choose to take the next step.
- Am I guaranteed a higher loan amount if I add my brother as a co-applicant on my home loan?
Your loan amount depends on the income of the applicants. If your brother is an earning member, your combined income will get you a higher loan amount. If he is not an earning member, there is no point. Furthermore, your loan amount is also dependent on the property type and its current market value.
- Can the EMI amount be debited equally from my sibling’s bank account and my bank account?
Though it is a joint home loan, the EMI amount will be debited from one bank account only. It can either be yours or your sibling’s. If your sibling wants to contribute towards the EMI, they can credit that amount to your bank account from where the EMI is debited. Some banks even allow part prepayment where you can directly credit it to the loan account.
- Can I take a joint home loan with anyone?
You can take a joint home loan only with immediate family members like your parents, siblings, spouse, and kids.
- What are the advantages or pros of taking a joint home loan with my sibling?
- Higher loan amount
- Lower interest rate
- Comfortable repayment
- Tax benefits for both
- What are some of the disadvantages or cons of taking a joint home loan with my sibling?
- Lengthy Documentation Process
- Unforeseen financial & emotional pressure
- Impact on credit history
- Death of co-applicant
- Legal implications while selling the property