Buying a house by availing a joint home loan sounds like an exciting idea. This can ease the burden on loan repayment; you can go for a larger house by combining your income with that of your spouse. Besides, the government also provides discounts on registration charges. For instance, in the state of Haryana, stamp duty charges for men are 5% in rural areas and 7% in urban areas as against 3% in rural areas and 5% in urban areas for women.
However, as exciting as this seems, it is important to know that a joint home loan comes with its own set of risks, and pros and cons. As we know, housing loans are secured, and applying for one with your spouse (co-applicant) is a guaranteed way to ensure the payback. While it’s always beneficial to have a co-guarantor, a buyer should not be swayed and should consider all the other factors.
“First of all, usually, banks insist on the co-owner being a co-applicant. However, the opposite may not be true as the co-borrower does not automatically make him/her the co-owner. Secondly, a joint home loan comes with full responsibility of both the applicants and each of them is liable to pay back on time,” says Atul Monga, Co-Founder & CEO, BASIC Home Loan.
Following are the three risks of availing a joint home loan:
Future Scope of Credit
While your credit score will not improve with a joint home loan, if a partner refuses to pay his/her share, it can affect the overall credit reputation. According to experts, a majority of default payments mostly happen with co-applicants. Apart from this, when you take a joint home loan, you both exhaust your credit limits. This can be risky if you meet any emergency or require an education loan for your child. It is advised for only one partner to service a home loan and keep the other partner debt-free, reserving the scope of a new loan should the need arrive.
Case of Divorce or Death
If in the future you decide to part ways with your partner after availing a joint home loan, repayment of the loan becomes a complication This is because, for lenders, all the applicants are equally liable to pay the outstanding amount. For instance, “after the divorce, if one of the spouses stops paying the EMIs, the burden of repaying falls on the other applicant. Note that the applicant will pay the EMIs without getting ownership of the entire property. Also, the inability to repay can create legal problems for both borrowers. Hence, it is always suggested for couples to take experts’ help before buying a home jointly,” informs Monga.
Similarly, if in an unfortunate incident, one of the spouses passes away, the burden of clearing the outstanding payment falls on the surviving partner. In case of non-repayment, as per the T&Cs, the lender will seize the assets of a co-applicant.
Right of Ownership
In the case of a joint loan, the ownership of the house is divided equally irrespective of who paid the EMIs. Also, when there are more than one owner, selling the property can be difficult till both the co-owners agree to sell.