Weigh The Benefits And Drawbacks Before Taking Out A Joint Home Loan With Your Sibling

Home loans are a significant financial commitment with a large loan amount and a high-interest rate. Taking out a home loan with a sibling, spouse, or parents can be quite helpful because the loan responsibility is shared.

When you take out a house loan with your sibling, you can benefit from a bigger loan amount, a reduced interest rate, a tax benefit for both applicants, and the risk of repayment is distributed. It may, however, go wrong. If one of you fails to contribute to the loan and it defaults, you will both be held liable, and your credit ratings will be impacted.

Benefits

Higher loan amount

If your sibling works, his or her salary will be taken into account, and you may be eligible for a larger loan. This is especially useful if you have a low income that does not allow you to qualify for the loan amount you require. Obtaining a larger loan amount also entails making a smaller down payment on your house. You may now afford a larger and more luxurious home.

Lower interest rates

When you apply jointly, both your credit scores and income will be considered, significantly lowering the amount of interest charged on your loan. This is because your loan application has a lower risk ratio. If your sibling is a woman, you may be eligible for an additional 0.05 percent interest discount for women applicants.

Tax Benefits

One of the most significant tax advantages is a home loan. Each co-applicant under a combined home loan is eligible for an income tax rebate of up to Rs.1.5 lakh each under Section 80C of the Income Tax Regulations, and up to Rs.2 lakh each under Section 24 of the ITA, on repayment of the principal amount of the home loan.

In the case of combined home loans, the tax benefits are only available on the amount paid by you. In any given year, the total principal repaid and total interest paid on the house loan cannot exceed the total tax benefit obtained by all co-applicants. As a result, if the loan was paid jointly, the family’s entire tax liability would be decreased. It’s important to stress that each candidate must also be a co-owner of the property.

Convenient Repayment

It will be simple to repay the loan because both of you will contribute to the EMI. You might be able to pay off the debt sooner if you contribute additional funds to it whenever you have extra money. This reduces the total strain on your money.

Drawbacks

Lengthy documentation process

The loan application procedure may be delayed since the loan officer must examine two sets of documentation. Both applicants must produce proof of income, identification, and residence, as well as any additional documentation requested by the bank. They might even ask for a few more documents to prove your relationship with the co-applicant. Which could cause unneeded delays and headaches.

Unexpected financial & emotional strain

If your sibling ceases financially supporting you, repayment could become a strain. Despite the fact that the loan is taken jointly, your sibling is not required to contribute to the loan repayment. They can possibly run into some financial difficulties and discontinue sharing your EMI responsibility. You will then be responsible for the total payback amount. This could cause emotional strife in the family and disrupt the household’s tranquility.

Impact on credit history

Because you took the loan together, it has an influence on both of your credit scores. Both applicants’ credit scores will be affected if the loan is not repaid on time or if there is a default. Even if you are not the primary borrower, your credit score will be impacted by your sibling’s defaults.

Death of co-applicant

In the event that the co-applicant dies, you become the single borrower on the loan, and you are responsible for repaying it. This will put more strain on your budget, resulting in some uncomfortable scenarios.

Legal Consequences When Selling the Property

Your sibling would be the co-owner of the property as a joint applicant on your home loan. When you’re ready to sell the house, you’ll need your sibling to sign the forms. If your sibling dies, it will cause unnecessary complications in terms of legal heirs and beneficiaries.

Conclusion

Borrowers benefit far more from joint home loans. We may fairly presume that because it is your sibling, you will get a greater loan amount and cheaper home loan rates on your home loan. However, before proceeding, it is advisable to write down all of the terms of the home loan and assess the advantages and disadvantages of each alternative.