Recently, HDFC Bank and several other banks have increased their home loan rates by 50 basis points, thereby making home loans expensive. One way to curtail the cost of a higher equated monthly instalment (EMIs) could be to take a home jointly with your spouse. That said, they also carry a fair amount of risk.
But first, let’s look at the advantages of a joint home loan with your spouse.
Advantages Of A Joint Home Loan With Spouse
Tax benefits: Joint home loans may come with a number of tax advantages. For example, Section 80C of the Income Tax Act, 1961 provides a couple to claim a tax deduction on the principal amount of up to Rs 1.5 lakh. But borrowers can also deduct interest repayments from their taxes up to a limit of Rs 2 lakh under Section 24.
“But in case of a joint loan, both partners can claim the combined house loan tax benefit as individual taxpayers. In total, the couple can claim Rs 3 lakh under Section 80C and Rs 4 lakh under Section 24 of the Income Tax Act,” says Atul Monga, co-founder and CEO of BASIC Home Loan, a Gurugram-based start-up which is developing a platform for automating home loans for middle- and low-income households in India.
Reduction in stamp duty: A joint home loan with a spouse is a great way to save money on stamp duty. To encourage women to invest in property and empower themselves, the government offers lower stamp duties to women.
Reduced interest rates: Among the many advantages of getting a joint home loan with a spouse, one of the most obvious is that both people will have an interest rate that is lower than what they would get if they were to individually apply for a home loan. “Women borrowers usually receive special interest rates from financial institutions, which are a few basis points lower than normal rate of interest. However, to get this, the woman must be the joint or sole owner of the property. This means that it could take less time to pay off the mortgage, and the money saved on interest could be put towards other things,” says Monga.
Disadvantages Of A Joint Home Loan With Spouse
Let’s now consider the disadvantages of a joint home loan with the spouse
Divorce or death: One disadvantage is that if one spouse dies or files for divorce, then the other spouse will be responsible for paying off the entire home loan on his/her own. This can be difficult if they are not financially stable enough.
Sudden change in finances: One of the most important reasons to avoid this type of loan is if one partner becomes unemployed or suffers from an illness that prevents them from working full-time. In these cases, there is no guarantee that both partners will have enough income to cover the monthly mortgage payment and other related expenses, such as property taxes and homeowners’ insurance.
Limited share: Joint home loans can be a great way to get into the property market and start building equity together. “But it's important to know that this type of loan will require both parties to be on the title deed, which means that if one person were to die or file for divorce, the other would have no claim over the property, and may not be able to sell it without getting a court order,” adds Monga.
