Can You Get Out Of A Joint Home Loan?
After a great deal of deliberation, two people join forces, monetarily speaking, to afford for themselves the fairytale house they have been dreaming of owning. They approach the bank, which anyway loves the idea of joint ownership of loans, get their home-loan application accepted, and become the owners of an immovable asset they would call home. Unfortunately, a lot changes with time, and things might come to a pass where one of the co-borrowers wants to get out of this arrangement.
Whatever the reason be behind this change in the situation, the path to get your name out of a joint home loan agreement would be quite bumpy, and caution, restraint, patience and co-operation from all parties concerned would be the key to have a smooth exit.
Let us go about it, step-wise.
Before you approach the bank
Now, you would certainly not want to involve the bank in your personal matters, but in this case you don’t have much choice. You will have to state the exact reason because of which one of you if signing out of the loan. To keep the conversation as formal, it would be the best if the co-borrowers talk in detail and chalk the details of the new arrangement they are looking at. It would be an enormous mistake to discuss any of your personal differences in front of the bank staff. Arrive at a decision before you make the visit. It would be an absolute waste of time to visit the bank while you are still discussing the plan.
Even if you have decided to give your share of the property to the one who would have to serve the loan, you still have full responsibility to serve the loan, legally speaking. Work out your plan keeping that fact in mind.
When you make a visit to break the news, do expect your bank to be unhappy about the situation—they have all the reason to be so, to be fair. Before we talk further, be advised that phone calls would simply not do. You will have to make personal visits, may be several, to your home branch to get the job done.
While granting you the home loan, they took into account the individual repayment capacity of the co-borrowers. A good deal of research and paperwork went into establishing the fact that lending to the co-borrowers was no risk. You may have assumed that you share the loan burden with your partner, but both the parties are fully responsible to repayment the loan, as far as banks are concerned — there is no such thing as sharing a loan in the world of home finance. If one co-borrower wants out, it upsets the bank’s plans, too. The loan stops being as risk-free as it was under the previous arrangement.
“The personal changes in a borrower’s life may significantly impact their monetary position. However, the borrower has to pay every penny that he owes the bank irrespective of any changes. Banks are not going to “like” any changes. Home loan agreements are written in a manner that makes the document impervious to personal changes in the borrowers’ lives,” says Brajesh Mishra, a Gurgaon-based lawyer.
Due to this, most banks would show any unwillingness to let a co-borrower get out unless they make sure that the borrower, who is left to take the burden, is in a firm position to do so. It may so happen that the borrower, who is left to take the burden, does not have the repayment capacity to pay the loan. Banks will not allow the co-borrower to move along before they make an upfront payment to bring down the loan amount to an extent that the individual borrower reaches a level where he can afford the outstanding loan. All this work will involve making several big and small payments. If all goes well, one party will get to sign out while the other party would become the absolute owner of the loan.
In several situations, however, this may not be a possibility. If one borrower does not have the repayment capacity, the bank will refuse to entertain your application.
What happens if the bank refuses to entertain your application?
Refinancing: You could go to another lender. Talk to them about your situation, and see if they are willing to refinance the loan in the name of a single borrower. This refinancing business would also involve additional costs, mind you! Also, if your liabilities are larger than the value of the asset, new banks may not warm up to you.
Sale: If both of you are facing financial hardships and are not able to make an upfront payment to lower the loan liability, the bank will as a last resort repossess the property and sell it to settle the loan. Whatever money is left after the loan is adjusted, and will be divided between the two parties.