Recently, HDFC Bank and several other banks increased their home loan rates by 50 basis points, making home loans expensive. One way to reduce the cost of a higher equivalent monthly payment (EMI) could be to take a house jointly with your spouse. That said, they also come with a fair amount of risk.
But first, let’s look at the benefits of a joint home loan with your spouse.
Advantages of a joint mortgage with spouse
Fiscal advantages: Joint home loans can come with a number of tax advantages. For example, Section 80C of the Income Tax Act 1961 allows 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 the case of a joint loan, both partners can claim the combined tax benefit of the home loan 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 startup that is developing a platform for home loan automation for middle and low income households in India.
Reduction of stamp duty: A joint home loan with a spouse is a great way to save on stamp duty. To encourage women to invest in real estate and empower themselves, the government offers reduced stamp duty for women.
Reduced interest rates: Among the many benefits of getting a joint home loan with a spouse, one of the most obvious is that both people will get a lower interest rate than they would get if they were to apply for a home loan individually. “Women borrowers usually receive special interest rates from financial institutions, which are a few basis points lower than the normal interest rate. However, to obtain it, the woman must be co-owner or sole owner of the property. This means paying off the mortgage could take less time and the money saved on interest could be used for other things,” says Monga.
Disadvantages of a joint mortgage with spouse
Now consider the disadvantages of a solidarity mortgage with the spouse
Divorce or death: A disadvantage is that if one of the spouses dies or files for divorce, the other spouse will be responsible for repaying the entire home loan on their 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 of the partners 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 home insurance.
Limited share: Joint home loans can be a great way to enter the real estate market and start building capital 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 right to the property and might not be able to sell it without getting a court order,” Monga adds.