Loans: what to check before taking out a solidarity mortgage

For many potential buyers who find it difficult to obtain a home loan due to unaffordable real estate prices, joint home loans are often a respite. Many dual-income households are also opting for solidarity home loans to fulfill their dream of owning a home.

A solidarity home loan is useful when you lack the funds to buy your house. It can also be useful in situations where your credit score is low or when you are not eligible for the loan. Joint home loans are taken out between family members, usually between married couples.

However, there are certain things you should keep in mind before taking out a group home loan.

Choose your co-borrower carefully

Close relatives or family members with a legitimate source of income or co-ownership of the property can be co-borrowers with you on a home loan. For example, spouse, son and father, brothers and single daughters with father/mother are some of the possible co-borrowing arrangements. However, sisters, friends and distant (non-consanguineous) relatives are not allowed as co-borrowers.

You have to choose your co-borrower with caution. You must take into account the risk of litigation with your co-borrower. For example, if your spouse is a co-borrower and in the future there is a divorce, there should be an agreement on who becomes responsible for IMEs. Similarly, the dispute may arise with brothers as co-borrowers, parents, etc. The best way to avoid such a situation is to choose your co-borrower carefully.

Verify co-borrower loan eligibility

Before applying for a home loan with a co-borrower, you should check their eligibility to take out the loan. Adhil Shetty, CEO of Bankbazaar.com, says, “The co-borrower can improve your loan eligibility. But if the co-borrower has a bad credit profile, you might be better off without it. When choosing the co-borrower, check their income, credit score, repayment ability, and level of commitment to being part of your home loan journey.

Take loan insurance

One of the reasons for taking out a home loan with a co-borrower is to reduce the EMI charge, but what will you do if the co-borrower is no longer or unable to pay due to a financial emergency or sanitary? In addition, the entire repayment obligation is transferred to the remaining co-borrower(s) in the event of the premature death of one of the co-borrowers. However, you can avoid such risks by insuring the life of all borrowers. A term plan can be a good option to cover the risk of death.

Tax benefits available

If you are a co-borrower and co-owner of the property, you can benefit from the various tax advantages of the mortgage. Each co-borrower who is also the co-owner of the property is eligible for tax deductions of up to Rs 2 lakh u/s 24 of the Income Tax Act on payment of interest on the home loan during the qualifying exercise. Suppose both borrowers hold a 50% share in the property and together you pay Rs 5 lakh interest on your home loan, you can avail the tax deduction of Rs 2 lakh each. Likewise, each co-owner can avail the tax deduction of up to Rs 1.5 lakh every u/s 80C of IT law against repayment of the principal amount every year. Each co-borrower may receive tax benefits in proportion to their property and are subject to the maximum limit for the individual in accordance with tax laws.

Remember these points to take the time to sign the dotted lines of your solidarity mortgage contract.

Dream house

* A joint home loan is useful if someone has a low credit score or you are not eligible for the loan. He is caught between family members

* Before embarking on a financial journey together, consider the risk of litigation with your co-borrower

* If you are a co-borrower and co-owner of the property, you can benefit from the various tax advantages on the mortgage

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