Benefits and Drawbacks of a Joint Loan.

Document Sample
Benefits and Drawbacks of a Joint Loan. Powered By Docstoc
					When you take a mortgage loan, you often consider whether you should take it in
single name or jointly. A mortgage loan can be taken by you individually or it can be
taken in joint names. A joint mortgage loan is nothing but a home loan taken jointly
by two people. In today’s world the real estate prices are soaring in the sky. Couples
need to take a loan to own a house. A single person will not be eligible for a very high
loan amount. Thus is the need for joint loan. Before taking a joint loan, use a loan
calculator to understand your EMI, tenure and other issues of the loan. Benefits There
are many advantages of taking a joint loan. Increased Loan Amount One major factor
for the loan amount is the EMI as a percentage of your monthly pay. A high EMI to
monthly pay ratio makes a possibility of defaulting. Thus the bank gives loan on your
repaying capacity. Higher your monthly pay, higher could be the loan amount.
Therefore, when you club your monthly pay with your partner’s, for the purpose of
joint loan, the loan amount also is high. Here the bank combines both your monthly
incomes and sanction the loan in proportion to the combined pay. Income Tax
Benefits There will be income tax benefits for both the partners. Let’s say you are
eligible for a tax savings of $1000 on this loan amount. But if the loan is not joint
name, and both you and your partner is paying the EMIs, then you both can avail tax
benefits of $1000 each making the combined benefit of $2000 on the same loan. If
you would have taken the loan on individual name, you could have availed benefits
worth only $1000. Greater Credit scores Once the loan debt is paid off, a person
enjoys a greater credit score. But if the loan was in joint name, then both the partners
would enjoy a greater credit score on the basis of the same loan. Drawbacks From the
above benefits is very obvious that a joint loan offers many advantages like higher
loan amount, tax benefits, good credit etc., but there is always a flip side to everything.
A joint loan has its own complications and drawbacks. Joint Tenants In case your
co-applicant for joint mortgage loan is not your spouse, but is you friend or other
family member, you might have to share your space with them. You might have to
adjust your lifestyle. Even in case of a dispute, you cannot throw them out of your
house. Even they own the place. You might have to draw up a co-habitation
agreement and trust deed. Issues in case of separation In case the couple divorces, or
in case of the partners breaking their partnership, there would be a problem for the
repayment of loan. The debt needs to be split between the two applicants. This will be
a complicated process. The bank would need to modify the mortgage application. This
might result in the need to sell the house and pay the debt. Debt-splitting is a tedious
process that involves heavy stress and huge legal fees.

Shared By: