Buying a home is a big milestone, and most aspiring home buyers opt for a joint home loan to enhance eligibility and make the financial aspect easier. Joint home loans can be applied in conjunction with your spouse or other family members provided they meet certain criteria like a good credit score, age, income, and other factors. In addition to increased financial limit, joint home loans also have multiple tax benefits.
However, in some cases, there can be a situation where one of the co-applicants want to quit the joint home loan arrangement. Now, this could happen due to an array of reasons such as divorce between the spouses, disputes between co-owners, financial difficulties, etc.
So, what is the way out? How tedious is the process to get out of a joint home loan? Will there be any financial implications? We will try to answer all these and much more in this post.
Talk to your lender
The first step is to let your lender know about this decision. It is best to sort out all important matters among yourself before approaching the bank, especially the details of the new arrangement. Once both the borrowers are on the same page, visit the bank and discuss the matter in detail.
Since the bank sanctioned the loan considering the repayment capacity of both the individuals, the remaining borrower will have to convince the bank about their financial strength. A good credit score will earn some brownie points here. The bank will also assess other factors including, the remaining loan amount. Remember, if the bank is not convinced of the repayment capacity of the other borrower, it can refuse to entertain your request.
Now, let’s look at the two possible cases.
Case I: Bank agrees, a new contract is signed
If the bank agrees to accept your request, it will make a new home loan contract through a novation. Here, the remaining borrower will have to furnish a list of documents again. While this may vary from bank to bank, generic documents include the last three to six months salary slips, tax returns, and past one year’s bank statement.
The co-borrower opting out might have to sign a ‘quitclaim deed’ to forgo his ownership in the property title.
Case II: Bank does not allow a co-borrower to exit
There could be a possibility where the bank refuses to accept your request due to some reasons. In such a scenario, it is better to rethink your decision and try to work it out. If not possible, then you have just two feasible options.
Find a new lender: The first option is to find another lender who is willing to refinance your loan in the name of one applicant. However, you will have to pay charges for refinancing. Also, knowing your situation, few banks might charge you a higher interest rate. Thus, it is better to visit multiple banks and analyse the interest rates and other charges before deciding on the lender.
Sell the property: The last resort is to sell the property and divide the profit, as stated in the sale deed. Remember that this will be a time-consuming process, which could also be mentally and emotionally draining.