Why joint home loans could be a smart move for homebuyers

For many homebuyers, taking a joint home loan can open the door to substantial savings. From enhanced loan eligibility to tax breaks and reduced interest rates, co-ownership, especially with a female co-borrower, can significantly lower the cost of homeownership.

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But there are caveats to consider, from stricter PMAY eligibility rules to the complexities of exiting a joint loan. Here’s a comprehensive look at how joint property ownership can be a smart financial move and the pitfalls to watch out for.

Boost loan eligibility, lower interest rates

Applying for a home loan jointly can significantly increase your borrowing capacity. Lenders assess the combined income of all co-applicants, allowing for a higher loan amount than if a single applicant were assessed individually.

For instance, if Mr A earns ₹1 lakh per month, the bank will approve a loan based on his income. But if his wife, who also earns ₹1 lakh, joins as a co-applicant, the lender can calculate eligibility based on their combined income of ₹2 lakh. This can significantly increase their borrowing capacity.

“Co-applicants can avail higher loan amounts owing to their combined income, which enables them to choose from a wider range of properties. The responsibility of repaying the loan is shared by the co-applicant, reducing the financial stress on a single person," said Arjun Chowdhry, group head - affluent banking, NRI/Cards, payments and retail lending, Axis Bank.

Notably, not all co-applicants need to be co-owners. Bank of Baroda allows close relatives to be added as co-applicants to boost loan eligibility, even without ownership rights. Non-resident Indians (NRIs) can also be co-applicants if they hold a stake in the property.

“The most obvious benefit of a joint home loan is that you stand a chance of getting a higher sanctioned loan amount. This happens because the lender now considers two incomes instead of one in the application. So, you no longer need to worry about having to compromise on your ideal home due to a shortage of funds," says the Bank of Baroda website.

However, there are exceptions.

Jagadeesh Mohan, co-founder of Emisaver.com, cautions that if the primary borrower’s income is sufficient to cover the loan, the co-applicant’s income may not be considered. But in case of default, the lender can pursue repayment from both parties.

Adding a co-applicant with a strong credit score can also help reduce the interest rate on a home loan. Lenders assess the credit profiles of all co-applicants and may offer more favourable terms if one applicant has a particularly strong credit history.

“If one of the applicants has a stronger credit profile, it can result in better loan terms, including lower interest rates or faster approvals. However, if one co-applicant has a lower credit score, joining a secured loan and maintaining timely repayments can help them improve their credit profile," said Chowdhry from Axis Bank.

Some banks also provide interest rate discounts for female borrowers. According to BankBazaar, State Bank of India, HDFC Bank, and Union Bank offer a 5 basis point discount to female primary borrowers, while Bank of India provides a 10-15 basis point reduction. A basis point is one-hundredth of a percentage point.

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As per Bank Bazaar, once a loan is taken it is difficult to change the primary borrower to a female to get the interest rate discount.

Tax benefits of joint home loans

For those under the old tax regime, taking a joint home loan can effectively double tax benefits. Each co-owner paying EMIs can claim separate deductions under Section 80C for principal repayment and Section 24(b) for interest paid, said Naisar Shah, director, P.R. Bhuta & Co.

Section 80C allows a deduction of up to ₹1.5 lakh annually on principal repayment, which includes other investments like PPF and ELSS. Section 24(b) permits a ₹2 lakh deduction per person on interest payments. If Mr. A buys a property individually, he can claim up to ₹1.5 lakh under 80C and ₹2 lakh under 24(b). But if Mr. A and his spouse jointly take the loan and split the EMI payments, they can each claim these deductions, effectively doubling the tax break.

Capital gains exemptions also work in favour of joint owners.

Shah noted that when a jointly owned property is sold, both co-owners can each invest up to ₹50 lakh in Section 54EC bonds to offset capital gains. However, the exemption is proportional to their ownership share.

For instance, if a property bought for ₹1 crore is sold, and Mr. A and his spouse contributed ₹60 lakh and ₹40 lakh respectively, they can each claim exemptions based on their 60-40 ownership split, said Prakash Hegde, a Bangalore-based chartered accountant. If ownership shares are unclear, tax authorities typically assume a 50:50 split.

Additionally, under Section 54, if the proceeds are reinvested in another residential property, both co-owners can claim capital gains exemptions individually. If the gain is under ₹2 crore, the law permits a once-in-a-lifetime option to invest in two residential properties instead of one.

Stamp duty and government subsidies

Joint ownership can also lower stamp duty costs, especially if one of the co-owners is a woman.

Rajeev Kr. Mishra, founder of SRM Legal, said that some states and union territories offer reduced stamp duty rates for female property owners. In Delhi, for instance, the stamp duty is 7% for male buyers but 5% for women. For joint ownership where one owner is female, the rate drops to 6%.

“Maharashtra offers a stamp duty discount of 1% for a woman buyer. However, the criterion is that the buyer should only be woman. In case of a joint property, both buyers should be women," said Harsh Parikh, partner at Khaitan & Co. "States like Delhi and Himachal Pradesh also have remission in stamp duty for a woman buyer. Delhi gives a 1% discount if the joint buyer is a woman."

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Under PMAY, homebuyers can avail subsidies, but only if a female is listed as a co-owner, barring families without an adult woman. According to Mishra, the scheme requires the property to be the buyer’s first home, with no other “pucca" house in their name. Additionally, government employees are excluded from the subsidy.

Should you take a joint home loan?

Taking a joint home loan, especially with a female co-owner, can unlock multiple financial benefits, from tax breaks to interest rate discounts. But what happens if one co-borrower dies or wants to exit the loan?

Kunal Kabra of Kustodian Life said joint ownership can simplify property transfer if one co-owner dies.

"If a co-owner passes away, part of the property remains in the surviving owner’s name. This makes it easy to continue the utilization of the property during the transfer phase. In addition, the joint holder ends up with a majority holding instead of an equal holding and hence, dispute resolutions are easier. However, there is not much of a difference in the inheritance laws around it," said Kabra. “The best option is to create a will."

Exiting a joint loan, however, can be complicated.

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“The exit of a co-borrower is a complex process. It requires lender approval and loan closure/refinance, subject to the lender’s terms. The bank's decision usually depends on reassessment of whether the borrower can repay the remaining EMI independently. However, the legal and financial liabilities are applicable to both co-borrowers until the loan amount is completely settled, saidChowdhry from Axis Bank.