While it’s always beneficial to have a co-guarantor, a homebuyer should also keep in mind the risks of using a joint home loan.
Buying a home using a joint home loan sounds like an exciting idea. This can ease the burden of loan repayment; you can opt for a larger house by combining your income with that of your spouse. In addition, the government also offers discounts on registration fees. For example, in the state of Haryana, stamp duty for men is 5% in rural areas and 7% in urban areas compared to 3% in rural areas and 5% in urban areas for women.
However, as exciting as it may seem, it is important to know that a joint home loan comes with its own set of risks, advantages and disadvantages. As we know, home loans are secured and applying with your spouse (co-applicant) is a guaranteed way to ensure repayment. While it is always beneficial to have a co-guarantor, a buyer should not be swayed and should consider all other factors.
“First, banks generally insist that the co-owner be co-applicant. However, the reverse may not be true because the co-borrower does not automatically make it the co-owner. Second, a joint home loan comes with the full responsibility of the applicants and each of them is required to repay on time,” says Atul Monga, co-founder and CEO of BASIC Home Loan.
Here are the three risks of using a joint home loan:
Future Credit Scope
Although your credit score won’t improve with a joint home loan, if one partner refuses to pay their share, it can affect overall credit reputation. According to experts, the majority of default payments occur primarily with co-plaintiffs. Other than that, when you take out a joint home loan, you both exhaust your credit limits. This can be risky if you encounter an emergency or need an education loan for your child. It is advisable that only one partner service a home loan and keep the other partner debt free, reserving scope for a new loan should the need arise.
Case of divorce or death
If, in the future, you decide to separate from your partner after having benefited from a joint home loan, the repayment of the loan becomes a complication. Indeed, for lenders, all applicants are also required to pay the outstanding amount. For example, “After divorce, if one spouse stops paying IMEs, the burden of reimbursement falls on the other applicant. Note that the applicant will pay the EMIs without becoming the owner of the whole property. Moreover, the inability to repay can create legal problems for both borrowers. Therefore, couples are always suggested to take help from experts before buying a house together,” Monga informs.
Likewise, if in an unfortunate incident, one of the spouses dies, the burden of settling the unpaid payment falls on the surviving partner. In the event of non-reimbursement, in accordance with the T&Cs, the lender will seize the assets of a co-applicant.
In the case of a solidarity loan, the ownership of the house is divided equally, regardless of the payer of the EMI. Also, when there is more than one owner, selling the property can be difficult until both co-owners agree to sell.