While it is always beneficial to have a co-guarantor, a buyer should also keep in mind the risks of using a joint home loan.
Buying a home with 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 duties for men are 5% in rural areas and 7% in urban areas against 3% in rural areas and 5% in urban areas for women.
However, as exciting as it sounds, it’s important to know that a joint home loan comes with its own set of risks, pluses and minuses. As we know, home loans are secured, and applying for one 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 of all, banks usually insist that the co-owner be a co-applicant. However, the reverse may not be true because the co-borrower does not automatically make them the co-owner. Second, a joint home loan involves the full responsibility of both applicants and each of them is obligated to repay on time, ”says Atul Monga, co-founder and CEO of BASIC Home Loan.
Here are the three risks associated with using a joint mortgage loan:
Future scope of credit
While your credit score doesn’t improve with a joint home loan, if a partner refuses to pay their share, it can affect your overall credit reputation. According to experts, the majority of default payments mostly occur with co-applicants. Other than that, when you take out a joint home loan, you both exhaust your credit limits. This can be risky if you have an emergency or need a student loan for your child. One partner is advised to pay off a home loan and keep the other partner debt free, reserving scope for a new loan when needed.
Divorce or death
If in the future you decide to separate from your partner after receiving a joint mortgage loan, repayment of the loan becomes a complication. This is because for the lenders, all the applicants are also required to pay the unpaid amount. For example, “after the divorce, if one of the spouses stops paying the IMEs, the burden of repayment falls on the other applicant. Note that the applicant will pay for IMEs without becoming the full owner of the property. In addition, the inability to repay can create legal problems for both borrowers. Therefore, it is always suggested that couples seek the help of experts before purchasing a joint home, ”Monga informs.
Likewise, if in an unfortunate incident one of the spouses dies, the onus of settling the overdue payment falls on the surviving partner. In the event of non-repayment, in accordance with the T & Cs, the lender will seize the property of a co-applicant.
In the case of a joint loan, the home ownership is split evenly regardless of who paid the EMIs. Also, when there is more than one owner, selling the property can be difficult until both co-owners agree to sell.
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