Risks and complexities of taking a joint home loan: Taking a joint home loan with your loved ones is a significant financial commitment. While there are some benefits of taking a home loan in joint names, there are several potential risks and complexities that you should consider before making such a decision.

Financial Risks

According to Atul Monga, CEO and Co-Founder of Basic Home Loan, there are two financial risks linked to a joint home loan:

Default Risk: If one borrower is unable to make their share of the mortgage payments, it could impact the credit scores and financial stability of all co-borrowers. This could lead to foreclosure and loss of the property.

Liability for Full Debt: Each co-borrower is typically jointly and severally liable for the full amount of the loan. This means that if one borrower defaults, the others are responsible for the entire remaining balance.

Impact of Financial Difficulties

Monga says if one borrower faces financial difficulties, it may lead to missed payments, late fees, or even foreclosure. This can put a strain on relationships and trust among co-borrowers.

Conflicts and Disagreements: Further, there could be conflicts and disagreements over several issues among co-borrowers, such as:

Usage of the Property: Disagreements may arise regarding how the property is used, whether it’s a primary residence, a rental property, etc.

Maintenance and Upkeep: Disputes might occur over responsibilities for maintenance, repairs, and associated costs.

Selling the Property: Deciding when and under what circumstances to sell the property can be a contentious issue.

Differing Opinions about Property-related Decisions: “Different co-borrowers may have varying ideas about renovations, improvements, or even day-to-day management of the property. These differences can lead to tension and disputes,” says Monga.

Also Read: My Provident Fund account balance is Rs 14 lakh. Should I withdraw it to pay home loan?

Legal Complexities

There could be several legal complexities, such as:

Property Ownership Structure: The legal framework for joint ownership (e.g., tenants in common, joint tenants) should be clearly defined to avoid potential disputes over ownership shares.

Exit Strategies: Establishing a clear exit plan in case one co-borrower wants to sell their share or exit the arrangement can be legally complex, especially if there are disagreements among co-borrowers.

Exiting the Joint Home Loan: If one co-borrower wishes to exit the joint home loan arrangement before the loan is fully paid, there could be legal implications. This may involve the sale of the property, finding a replacement co-borrower, or refinancing the loan.

What should you do to avoid joint home loan risks?

“It is strongly recommended that anyone considering a joint home loan with loved ones seek legal and financial advice beforehand. A well-drafted agreement and open communication about financial expectations and responsibilities can help mitigate some of these risks,” suggests Monga.

“Additionally, having a contingency plan for various scenarios can provide a framework for addressing potential conflicts or disagreements in the future,” he adds.