Enhance your home loan limit by adding a co-borrower

Anbarasan Appavu

 The individual's ability to obtain a mortgage loan is constrained by the individual's income as well as their credit score. However, if he is joined by another person, such as a parent, child, spouse, or sibling, they are able to raise a greater sum of money and therefore qualify for a higher loan limit.

Adding a co-borrower

PNB has reduced its MCLR by 70 basis points, while the nation's largest bank, SBI, has reduced its MCLR (marginal cost of lending rate) across all-tenure loans by 90 basis points, bringing the effective home loan rate down to 8.60% per annum from 9.10% per annum, earlier.

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Who is eligible to co-borrow

When it comes to co-signing on a loan, the most common combination is a husband and wife team. It is possible for fathers and sons to take out loans together; however, in the event that the loan is taken out by a father who has more than one son, the property must be owned by the father. In order to prevent arguments between a father and his unmarried daughter after the couple gets married, the daughter should be the one who owns the property. In a situation involving a father, a son, and a daughter, the daughter might be required to give up her claim to the property.

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If two brothers are currently living together and have plans to continue doing so, they are eligible to submit a joint application. However, siblings, including brothers and sisters as well as sisters themselves, are not permitted to submit a joint application, nor can a person who is under the age of majority do so. In addition, a married daughter cannot submit a joint application with her parents. If the co-borrowers are a parent and a child, banks will typically refuse to allow a tenure that overlaps the post-retirement phase of the parent's employment.

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How does it help

Your eligibility for a loan may improve if you take out a joint loan. Let's say that your income makes it possible for you to take out a loan of R70 lakh, but what you really need is R1 crore. In this scenario, a co-eligibility borrower's could be increased, allowing them to take out a larger loan. When determining the maximum amount of money that can be borrowed through a co-borrowed loan, the repayment capacities of all applicants are taken into consideration together. If one of the applicants does not meet all of the requirements for eligibility, having a co-borrower can increase their likelihood of getting the loan. In a similar vein, having a co-borrower could improve a person's chances of obtaining a loan even if they have a credit score that is lower than what is required by the bank.

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Tax benefits

Each borrower on a home loan that is co-borrowed is eligible for tax benefits under Section 24 for the payment of the interest, and each borrower is eligible for tax benefits under Section 80 for the payment of the principal (C). The tax benefit is allowed in the proportion as per mentioned share of each applicant in the loan agreement, provided that the co-borrowers are also the co-owners of the property. In other words, the tax benefit is allowed in the proportion as per mentioned share of each applicant. The buyer is only eligible for the tax benefits once they have taken possession of the property after the seller has sold it to them.

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The reverse side

Before you sign a loan agreement, you should make sure that you are familiar with the terms and conditions of joint borrowing. If a co-borrower is unable to repay his or her portion of the equated monthly installments (EMIs), the lender may keep the right to collect the money owed from the other co-borrower in the loan agreement. 

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Because the co-borrower also serves as the guarantor, the creditworthiness of the other borrower could be negatively impacted if the first borrower were to default on the loan. Another issue that may arise is a disagreement between the co-borrowers. This is especially likely to occur in the absence of a will or when there are an excessive number of legal heirs who have a claim on the property in question.

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