Should You Become A Co-Borrower In A Home Loan To Claim Ownership?
Joint ownership of property is becoming popular among Indians for several reasons. However, this concept is different from joint home loans. Just because a property is co-owned does not mean it must have co-borrowers.
We bust some common myths about the two concepts:
Co-ownership versus co-borrowing
Home loan providers insist on joint home loan for a property which is not jointly owned to cover their risk. The liability to repay the loan lies with the co-applicants. For instance, if a married couple applies for a home loan and the husband defaults on the EMI, the bank will chase the wife to recover dues.
However, think twice before making a non-earning member a co-applicant in a home loan.
The tax benefits
To avail of the tax sops, a co-owner also must be the co-applicant of the home loan. On the other hand, tax benefits vary depending on whether the home is self-occupied or rented out. In a self-occupied house, co-applicants can avail of benefits under Section 80C of the Income Tax Act for repayment of principal loan amount, and under Section 24 for payment of interest of up to a ceiling of Rs 2 lakh. If the house is rented out, the entire interest paid is allowed as a deduction from your income.
If a property is jointly owned, co-owners should opt for a term insurance in proportion to the ownership in the property (provided all co-owners are earning members). However, opting for a home loan protection plan is not a good idea because in case of an unfortunate event, the insurance provider will only clear the loan of deceased depending on his ownership in the property.
Under the Marriage Laws (Amendment) Bill, 2010, a wife automatically becomes the master of half of the property of her husband acquired after marriage. This means the laws automatically provide financial security to wives. And, you need not enter into another agreement to have your share.
Also, there are legal implications if one purchases a property with a blood relative, excluding spouse. It is not advisable to buy property with one's mother, father or siblings. In case of a dispute over the property in future, legal heirs can stake their claim in the property. For instance, if a son buys property with his mother, his siblings, too, can demand their share in the property because the mother is a co-owner.