Three roles, often confused
| Role | Named in | Means |
|---|---|---|
| Co-owner | The sale deed | Holds a legal share in the property |
| Co-borrower | The loan agreement | Jointly liable to repay the loan |
| Co-applicant | The loan application | Income considered for eligibility; usually becomes a co-borrower |
Lenders generally require that an owner of the property is also a borrower, since their security is the property. The reverse is not automatic: a person can be liable on a loan without being on the title, which is a position worth entering deliberately rather than by accident.
How it affects what you can borrow
Adding a co-applicant usually raises eligibility, because the lender assesses combined income. Three qualifications:
- Liabilities count too. A co-applicant with existing loans adds obligations as well as income.
- Credit records are assessed individually. A weak record on one applicant can worsen the terms rather than improve them.
- Age affects tenure. Lenders often set tenure against the older applicant's remaining working life.
Ask your lender to assess both structures before you decide. That conversation sits naturally alongside settling the disbursement position for an under construction purchase.
Tax, in outline
Deduction limits, conditions and the treatment of self occupied and let out property change. This section describes how the pieces fit together. Get the figures from your chartered accountant for your circumstances.
The general shape for claiming home loan deductions on a jointly held property:
- The person must be a co-owner of the property.
- The person must be a co-borrower on the loan.
- The person must have actually paid the relevant amounts from their own funds.
- Claims are generally made in proportion to the share, within the limits applying to each individual.
All four need to line up. The common failure is a spouse named on the title but not on the loan, or named on both but with every instalment paid from a single account. Keep payments traceable from each person's own funds if both intend to claim.
Stating the share
If the sale deed does not state the share, the shares may be presumed equal. Where contributions were unequal, that presumption can produce an outcome nobody intended.
So state it explicitly, and make it consistent with:
- What each person actually contributed.
- How the loan is being serviced.
- How deductions will be claimed.
It costs nothing to include at drafting. Changing it later is a transfer, with stamp duty and registration attaching. This is one of the clauses to check when reading the agreement and the deed.
Planning a joint purchase?
The project team can provide the cost sheet and payment schedule to take to your lender, so both applicants can be assessed before you commit.
Succession and exit
Two situations worth deciding in advance rather than discovering:
- On death of a co-owner. How the share devolves depends on the form of ownership and the applicable succession law. In many cases it passes to legal heirs rather than automatically to the surviving co-owner. Joint ownership is not a substitute for a will.
- On sale or separation. Both owners must ordinarily join in a transfer. If the relationship changes, a sale needs cooperation. Agreeing in advance how a disagreement would be resolved is uncomfortable and considerably cheaper than resolving it later.
What to settle
- Who is a co-owner, and in what share?
- Who is a co-borrower?
- Does the share in the deed match actual contributions?
- How will each person pay, so that payments are traceable to their own funds?
- Who will claim which deductions, and does the structure support that?
- Is there a will covering each person's share?
- What happens if one owner wants to sell and the other does not?
This explains how the mechanism works. It is not financial, tax or legal advice, rates and rules change, and your position depends on your own circumstances. Confirm the figures with your chartered accountant and have a property lawyer read your agreement.
What is the difference between a co-owner and a co-borrower?
A co-owner holds a legal share in the property and is named in the sale deed. A co-borrower is jointly liable to repay the loan and is named in the loan documents. A person can be one without the other, though lenders usually require an owner to also be a borrower. Knowing which role each person holds matters for tax and for succession.
Does adding a co-applicant increase my home loan eligibility?
Usually yes, because the lender assesses the combined income and obligations of the applicants. The co-applicant's income, credit record and existing liabilities all affect the outcome, so a co-applicant with a weak credit record can reduce rather than improve the position. Ask your lender to assess both scenarios.
Can both joint owners claim home loan tax deductions?
Broadly, each co-owner who is also a co-borrower and who actually pays from their own funds may claim deductions in proportion to their share, within the limits that apply to each individual. The share, the actual payment and the ownership all need to line up. Confirm the position for your facts with your chartered accountant.
Should I state the ownership share in the sale deed?
Yes. If the deed is silent, the shares may be presumed equal, which may not reflect what each person contributed. Stating the share explicitly avoids ambiguity later at sale, on succession, and when deductions are claimed, and it costs nothing to do at the time of drafting.
Does joint ownership avoid the need for a will?
No. How a deceased co-owner's share devolves depends on the form of ownership and on the applicable succession law, and in many cases the share passes to legal heirs rather than automatically to the surviving co-owner. Make a will regardless of how the property is held.
Can I add a co-owner after buying?
Adding a person to the title after purchase is a transfer, and generally attracts stamp duty and registration, and may have tax consequences. It is usually simpler and cheaper to decide the ownership structure before the sale deed is executed. Take advice before restructuring an existing holding.