The price of house properties has come down due to the Covid outbreak. It is an opportunity for young people to invest in house property. However, they lack the sufficient income required to buy the property with a home loan. In such cases, they make their parents or siblings the co-applicants, which have their own merits and demerits like: Also check: buy sale
Some of the merits of taking a joint home loan with your siblings are:
Higher loan amount:
Banks and financial institutions consider the income of both the applicants while determining the housing loan eligibility. Therefore, from the bank’s point of view, having a co-applicant is beneficial as the risk of non-repayment of the loan reduces significantly. From the applicants’ point of view also it is helpful as they will be eligible for a higher loan amount. You can use the home loan eligibility calculator online to check how much loan you can get.
If you apply together, your creditworthiness and income will be taken into account, effectively reducing the final accrued interest on your loan. This is due to the lower risk ratio associated with your loan application. In addition, if your brother or sister is a woman, you can receive an additional 0.05% interest rebate given to female candidates.
Higher tax benefit:
In a joint home loan, both the applicants can avail of the principal and interest benefit separately. The Income Tax Act offers an advantage of Rs 2 lakh on interest paid under section 24. It also provides a use of Rs 1.5 lakh ( including other eligible deductions) on the principal amount paid under Section 80C. It can be availed by both the applicants of the loan, thereby providing each a higher tax benefit.
With a combined home loan, the tax credit is only available on the amount you pay. The aggregate tax benefits claimed by all applicants together cannot exceed the principal amount paid and the amount of interest paid on the home loan in any given year. This reduces the family’s overall tax burden if the loans are repaid together. However, it is important to emphasize that each candidate must be a co-owner of the property.
Transfer of property becomes easier:
In case one of the co-owners of the property dies suddenly, it becomes easier to transfer the property to the other without too much legal trouble. The surviving sibling can get the property transferred to their name by simply obtaining registration in his name in a lawyer’s presence. In other cases, a lot of legal hassles are involved.
Some of the demerits of taking a joint home loan with siblings are:
Documentation process becomes lengthy:
Since the loan officer has to scrutinize two sets of documents, the entire process can take a longer time. You may also have to submit documents to establish the relationship, leading to delays in the loan application process.
In case one of the co-applicants defaults in their repayment of the loan, the obligation of the other increases. Default on the part of one applicant will adversely impact the credit scores of both. It might result in disputes. Also, family disputes might hurt the relationship between the siblings.
Selling the property:
If one sibling wants to sell the property and the other does not, then the investment gets stuck, affecting their respective future financial goals. Any family dispute may sour the relationship between the siblings, making it very difficult to sell the property.
Any day joint home loans are beneficial to the borrowers as it increases the loan eligibility amount. It decreases the interest rate, thereby reducing borrowing costs. And since the co-borrower is none other than your sibling, it can be an added advantage. However, the cons must be considered before deciding to avail a joint home loan with siblings.
Joint Loan can be difficult unless the husband and wife seek it together. In another relationship, the lender considers various parameters before approving a loan.
Joint loans are large commitments with significant loan amounts and interest rates. Taking out a joint home loan with siblings, spouse, or parents can be very helpful because the responsibilities of the loan are divided.
Taking out a home loan with your sibling can be beneficial in many ways; For example, you get a higher loan amount, a lower interest rate, tax benefits for both applicants, and the risk of co-payment. But he could be wrong. If one of you fails to contribute to credit and collapses, both of you will be held accountable and your credit score will be affected.
Joint home loans definitely have more benefits for the borrower. Since it is your brother or sister, we can assume that this is a much better option to get a better loan amount and lower interest rates for your home loan. However, it is advisable to list all the terms of a paper loan and weigh the pros and cons of each option before deciding on the next step.