Joint Home Loan is one of the best-marketed product by banks and HFC’s. Through Joint Home Loan banks hedge their mortgage risk. These days almost all the banks insist on Joint Home Loan even if the property is bought in a single name. Quite interestingly even if the wife is non-earning/housewife then also banks insist on Joint Home Loan. The biggest carrot to SELL Joint Home Loan is Home Loan Tax Benefits. I agree that if both Husband and Wife are availing tax benefits then it makes sense to avail Joint Home Loan else it’s a BIG NO.
Recently, one the readers of this blog complained to RBI regarding Joint Home Loan. The RBI refused to intervene. He received following reply from RBI
“In this connection, the management of loan sanctioning / recovery activity, in a bank is essentially an internal management function and each bank’s Board is authorized to frame suitable policies. Banks have been advised to prepare a well-defined loan policy approved by their Board of Directors“. In other words, banks are free to frame their policies.
I discussed the pitfalls of being a Home Loan Co-Applicant in my post, Beware of Being a Home Loan Co-Applicant. This post is all about MYTHS related to Joint Home Loan. The definition of MYTH is “a widely held but false belief”. In other words, we assume it to be TRUE but it’s not. I picked up points based on the some of the common problems/difficulties faced by the readers of this blog. Therefore, it is learning and lesson for all the potential borrowers. If the bank is not willing to lend without co-applicant then you don’t have any other option but to accept banks terms and conditions. At the same time, it is imp to understand the Myths and Disadvantages of Joint Home Loan to avoid any future shocker.
Joint Home Loan – 5 Most Common MYTHS
1. Handover of Original Property Documents at the time of Home Loan Closure:
A home loan is a long-term commitment. Today i might be in a good relation/terms with the co-applicant/guarantor. It might not be true after few years. One of the most common myth is that if the property is under single ownership then the co-applicant has NO ROLE at the time of loan closure.
The fact of the matter is that banks insist NOC from co-applicant/guarantor at the time of Home Loan closure. It is must requirement to release the original documents. I receive queries wherein borrower availed joint home loan with close relative or wife. The relationship went sour or NOC from co-applicant is not feasible. The primary borrower finds it difficult to get the original documents.
2. Signature of a Co-Applicant on Home Loan Application is “Just a Formality”
As the borrowers are becoming smart, the banks and HFC’s are becoming smarter these days. I was glad to know that borrowers are questioning banks why they need co-applicant. In some of the cases, the intent of a borrower is not to avail the joint home loan.
The DSA’s and Bank executive inform the borrower that it is “just a formality”. They only need a signature of a wife or any other relative. The borrower believes the DSA or Bank executive. The worst part is that bank handover application form with a cross sign where the main applicant has to sign and where the co-applicant has to sign. No one checks the fine print of the application. I have discussed the liabilities of a co-applicant or guarantor in detail in my previous posts. Therefore, it’s an MYTH that signature on a home loan application is just a formality.
3. A co-applicant (Non-Working/Housewife) increase Home Loan Eligibility
It is not true always. Only if the co-applicant of joint home loan is working then only home loan eligibility is increased. The problem arises when bank insists the housewife to be co-applicant of home loan. In this case, there will not be any impact on the Home Loan Eligibility of a borrower. The basic logic given by banks is that two borrowers mean higher home loan eligibility. The primary borrower fails to understand how a non-working borrower can help in increasing Home Loan eligibility.
4. A co-borrower (but not a co-owner) can claim Income Tax deduction
I highlighted this point multiple times in past. To provide good reading experience i hate to repeat any point that is already discussed on the blog but i keep getting queries in this regard. Therefore, it is important to highlight again. This scenario is common in case a parent or elderly person is applying for a home loan. In this situation, the loan cannot be approved under any circumstances without a co-borrower. In one of the case, the mother of a reader of this blog applied for a home loan. He became co-borrower as bank assured him that being a co-borrower he can claim a tax deduction. The only condition is that EMI should be paid by him. Because of over obsession with tax savings, he started paying EMI of home loan.
After two years when his ITR was scrutinized, the AO reversed all the home loan deductions claimed till date. He had to pay all the tax dues along with applicable penalties. It was a joint home loan shocker to him. Just to clarify, only a co-borrower who is co-owner can claim home loan tax benefits.
5. Home Loan Protection Plan is issued to Primary Borrower in case of Joint Home Loan
It is an MYTH or an assumption that Home Loan Protection Plan (HLPP) is issued in the name of the Primary borrower in case of a Joint Home Loan. Unfortunately, in most of the cases, the borrower don’t open and check the policy document. Recently, i came across a case wherein a housewife has to forgo the property after husband’s death. The husband died within one year of the availing home loan.
At the time of purchase, bank forcibly sold Home Loan Protection Plan. After the death when wife requested for the closure of home loan from proceeds of HLPP, she was shocked. The Home Loan Protection Plan was issued in her name. The proposal form had a signature of the husband. Therefore, it is an MYTH that Home Loan insurance will be by default in the name of the main applicant. In the example shared by me, the proposal form was filled by the insurance agent. Therefore, he filled the name of a co-borrower. Quite strange.
Words of Wisdom:
It is important for potential borrowers to understand the implications of Joint Home Loan. Personally, i am not in a favor of Joint Home Loan until unless the co-borrower/s is/are claiming income tax benefits and are co-owners. Any verbal communication from the bank has NO Relevance.
The joint home loan can have major future implications. Therefore, a borrower can evaluate all the pros and cons. There are banks and HFC’s who are willing to lend without a co-applicant or guarantor. The primary borrower can discuss all the scenarios with the bank in advance. In some cases, the bank agrees to approve the home loan without co-applicant but insist on same at later stages. It is another tactics whether intentional or unintentional, God knows.
Please note that all the points discussed in this post are applicable only if the co-applicant of home loan is not a co-owner. A co-owner has to be co-borrower else the home loan cannot be approved. You may check my post on Joint Property for more details.
Copyright © Nitin Bhatia. All Rights Reserved.
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