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Published 14:21 IST, November 22nd 2023

Considering a joint home loan this festive season? Think twice

Initially favoured for cost savings, joint home loans now pose issues like shared liability and limited flexibility, leading to expert caution.

Reported by: Business Desk
Considering a home purchase as a couple? Here's why you should rethink a joint home loan. | Image: Pexels

Festive season homebuying: Thinking of buying a home as a couple this season? Experts shed light on the pros and cons of joint home loans. Joint home loans, initially favoured for reduced interest rates and tax benefits, now come with their share of drawbacks. These include shared liability and limited borrowing flexibility. Financial experts caution against these potential pitfalls.

Experts highlight the downsides of joint housing loans. "One significant drawback is shared liability, where both partners assume equal responsibility for the loan. This means that in case of default, both individuals face potential financial risks," said Amit Gupta, MD, SAG Infotech.
"Furthermore, if timely payments are not made, it can negatively impact the credit history of both co-applicants, affecting their future borrowing abilities," he added.

In situations like separation or divorce, joint home loans can lead to legal complexities, underlining the importance of having clear documentation in place to avoid complications.

Moreover, joint loans limit borrowing flexibility until the loan is fully repaid, which can hinder individual financial goals.

Aastha Gupta, CEO, Share India FinCap, adds that joint home loans can be disadvantageous for both applicants. If one applicant, voluntarily or involuntarily, loses their ability to contribute to repayments, the other partner with no mainstream income remains obligated to continue repaying the loan until its tenure ends. This situation can create financial stress. On the other hand, the partner making full EMI payments may not be able to claim the full income tax benefits.

Gen Z's perspective

In contrast to previous generations, Gen Z sees home loans as liabilities that limit their geographical flexibility and hinder their ability to actively invest and grow their wealth, especially when dealing with unstable income streams.

Tax and joint loans

When it comes to income tax rules for joint home loans, Section 26 of the Income Tax Act stipulates that in the case of jointly owned property, each joint owner is treated as the owner of their respective share in the property and will be taxed separately. Both partners can claim benefits under Section 24 for interest and Section 80C for the principal amount of the home loan if they are both servicing the loan.

"It's crucial to carefully weigh the pros and cons before opting for a joint home loan, especially during the festive season when property purchases are common," Gupta emphasised.

Updated 12:40 IST, December 11th 2023

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