Sir, A flat was purchased and registered in my son and wife's name. Housing loan was taken for the same flat from bank. The EMI is paid by me. Bank issues the interest and Principal certificate in favor of my son and my wife as applicant and me...

Sir, A flat was purchased and registered in my son and wife's name. Housing loan was taken for the same flat from bank. The EMI is paid by me. Bank issues the interest and Principal certificate in favor of my son and my wife as applicant and me as co applicant. Thus on the interest certificate all three names are there. Kindly guide me as to who can and how much each can claim the interest on housing loan u/s 24 and principal u/s 80C. Looking forward to your guidance. Regards. K. Subramanian

Ans: In the scenario you described, since you are the one paying the EMI and listed as a co-applicant on the loan, you can claim the tax benefits associated with the home loan. Here's how it works:

Interest on Housing Loan (Section 24): You, as a co-applicant and the one paying the EMI, can claim the tax deduction on the interest component of the home loan under Section 24 of the Income Tax Act. Since your name is on the interest certificate issued by the bank, you can claim the deduction. The maximum deduction allowed is up to Rs. 2 lakh per financial year for a self-occupied property.

Principal Repayment (Section 80C): Similarly, you can also claim the tax deduction on the principal repayment component of the home loan under Section 80C. However, the maximum deduction allowed under this section is up to Rs. 1.5 lakh per financial year.

Since your son and wife are the legal owners of the property, they do not qualify for these tax benefits unless they are also contributing to the repayment of the loan. It's essential to maintain proper documentation and consult with a tax advisor for accurate advice tailored to your specific situation.

Ans: Understanding Your Home Loan Scenario
You are a co-applicant on a home loan with a principal amount of Rs 50 lakhs and an EMI of Rs 50,000. The primary applicant is another family member, and the EMIs have been paid from their account for the past six years. Your timely payment history is noteworthy and reflects financial discipline. Now, you are considering taking another home loan as the primary applicant for a different property.

Impact of Existing Loan on New Loan Application
When applying for a new home loan, your existing loan will be considered by the lender. Let's analyze how this can affect your new loan application.

Positive Impact of Timely Payments
Credit Score Improvement

Timely payments on your existing loan enhance your credit score. A higher credit score increases your credibility with lenders.

Demonstrates Financial Responsibility

Consistent EMI payments indicate financial responsibility. Lenders view this positively when assessing new loan applications.

Negative Impact of Existing Liability
Increased Debt Burden

The existing loan adds to your overall debt burden. Lenders will assess your debt-to-income ratio to determine your repayment capacity.

Potential Lower Loan Amount Approval

Due to your existing debt, lenders might approve a lower loan amount for your new property. They aim to ensure you can manage multiple loans comfortably.

Balanced Perspective
While your timely payments positively impact your creditworthiness, your existing liability could limit your borrowing capacity. It's crucial to present a strong financial profile to secure a new loan.

Your Obligation as a Co-Applicant
Being a co-applicant carries certain obligations. Understanding these will help you manage your financial commitments effectively.

Joint Responsibility
Shared Liability

As a co-applicant, you share the liability of the loan with the primary applicant. If the primary applicant defaults, you are responsible for repaying the loan.

Credit Impact

Any defaults or late payments on this loan will affect your credit score. Ensuring timely payments is crucial for maintaining a good credit history.

Specific Obligations
Not Always 50-50

The division of responsibility is not necessarily 50-50. It depends on the agreement between the co-applicants and the lender's terms.

100% Responsibility in Default

In the event of a default, you might be held 100% responsible for the outstanding loan amount. This is crucial to consider before taking another loan.

Financial Planning
Proper financial planning is essential to manage multiple loans. Consulting a Certified Financial Planner (CFP) can help you strategize effectively.

Evaluating Your Financial Readiness for a New Loan
Before applying for a new loan, assess your financial readiness. Consider various factors to ensure you can manage the additional liability.

Income and Expenses Analysis
Stable Income

Ensure you have a stable and sufficient income to cover the EMIs of both loans. This reassures lenders of your repayment capacity.

Expense Management

Analyze your monthly expenses and identify areas to cut back if needed. This helps in freeing up funds for additional EMIs.

Debt-to-Income Ratio
Optimal Ratio

Maintain a debt-to-income ratio below 40%. This indicates you can manage multiple debts without financial strain.

Reducing Existing Debt

If possible, try to reduce existing debt before taking a new loan. This improves your debt-to-income ratio and borrowing capacity.

Emergency Fund
Adequate Savings

Maintain an emergency fund to cover at least six months of expenses, including EMIs. This provides a financial cushion in case of unforeseen circumstances.

Access to Liquid Assets

Ensure you have access to liquid assets that can be easily converted to cash. This helps in managing any financial emergencies.

Strategic Steps for New Loan Application
To enhance your chances of securing a new loan, follow these strategic steps. This ensures a smooth application process and favorable loan terms.

Improve Credit Score
Timely Payments

Continue making timely payments on your existing loan. This maintains a good credit score.

Clear Outstanding Dues

Pay off any outstanding dues or high-interest debts. This boosts your credit score and improves your financial profile.

Document Preparation
Income Proof

Gather all necessary income proof documents, including salary slips, bank statements, and income tax returns. This showcases your repayment capacity.

Loan Statements

Provide detailed statements of your existing loan, highlighting timely payments. This reassures lenders of your financial discipline.

Choose the Right Lender
Research Lenders

Research different lenders to find one offering favorable terms for your new loan. Compare interest rates, loan amounts, and repayment terms.

Pre-Approval

Consider getting a pre-approval for your loan. This gives you a clear idea of the loan amount you can secure and helps in property negotiations.

Working with a Certified Financial Planner
Engaging a Certified Financial Planner (CFP) can provide expert guidance. A CFP helps in aligning your financial goals with your loan obligations.

Personalized Financial Plan
Tailored Strategy

A CFP creates a personalized financial plan based on your income, expenses, and financial goals. This ensures effective debt management.

Long-Term Goals

Align your loan obligations with long-term financial goals, such as retirement planning and children's education. This ensures holistic financial health.

Debt Management
Optimized Repayment Strategy

A CFP can suggest optimized repayment strategies for multiple loans. This minimizes financial stress and ensures timely payments.

Risk Mitigation

Identify and mitigate potential financial risks. A CFP provides strategies to safeguard against unexpected financial challenges.

Final Insights
Navigating multiple home loans requires careful planning and strategic decision-making. Your timely payments on the existing loan demonstrate financial discipline, positively influencing your new loan application.

However, your existing liability can impact your borrowing capacity. Understanding your obligations as a co-applicant is crucial. You share the liability and credit impact, emphasizing the need for timely payments.

Before applying for a new loan, evaluate your financial readiness. Ensure a stable income, manage expenses, maintain an optimal debt-to-income ratio, and keep an emergency fund. Improving your credit score and preparing necessary documents are essential steps.

Engaging a Certified Financial Planner can provide expert guidance. A CFP helps create a personalized financial plan, aligning your loan obligations with long-term goals. They offer optimized repayment strategies and risk mitigation, ensuring holistic financial health.

By following these steps and seeking professional advice, you can effectively manage multiple loans and achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in