Can you get out of a joint home loan?

[ecis2016.org] We examine the options available to a co-applicant, who wants to get out of a joint home loan and how he/she should prepare for it

The benefits of a joint home loan are many. It provides borrowers with an opportunity to combine their respective credit taking capabilities and afford a home that might not have been possible, if only one of them had to finance the purchase. However, a situation may also arise, where one of the co-applicants may want to quit the joint home loan arrangement. This may happen, in case of a divorce between the spouses, the passing away of a parent, a dispute between brothers, etc.

You are reading: Can you get out of a joint home loan?

Let us explore the options available to the co-applicant who wants to get out of the joint home loan and how he/she should prepare for that.

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Leaving a joint home loan: Costs and challenges

A co-applicant, who wants to get out of a joint home loan arrangement, generally does so, because of some sort of falling out between the partners. Financial institutions neither like nor have any inclination to make any changes in the original arrangement. However, the co-applicant will have to inform the bank why one of them is moving out.

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It would not be wise to show disagreement in front of the bank officials, as they try to present you with new options. Hence, the borrowers should communicate with one another and reach an agreement, before visiting the bank branch, to discuss the problem. Disagreements that you show to the bank officials, may ultimately result in extra cost for the borrowers. The financing institution may charge more interest if they see your desperation, or delay the process and keep earning interest.

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How to remove a name from a joint home loan

If the bank is willing to allow the exit of one of the co-borrowers, then, it will reassess the loan before making a new contract in place of the old one, granting full ownership and liabilities of the loan to the remaining borrower/s. The bank is likely to assess the following:

• How much of the loan remains to be repaid?
• How capable is the sole/remaining applicant to repay the loan?
• Is the sole applicant’s credit score good enough?

If the bank is satisfied with the answers to all these questions, it will replace the old home loan contract with a new one, through novation. If the answers to the above-mentioned questions are not to the linking of the lender, it may refuse your request for moving out of the contract.

The ‘Quitclaim deed’ and other documents for leaving a home loan

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The sole/remaining borrower will have to submit several documents afresh – past one year’s bank statement, tax returns, salary documents, etc. – for the bank to process the request. The bank may also ask the applicant opting out to sign a ‘quitclaim deed’, to forgo his ownership in the property title.

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What if the bank does not allow a co-borrower to exit the home loan

Approach a new lender

If your bank does not offer the facility of allowing a co-borrower to exit the home loan, you may have to approach a new lender, who may be willing to refinance the loan in the name of one applicant only. This process will involve additional costs. Moreover, in such a precarious situation, the bank may resort to hard bargaining and charge extra interest on the home loan than the prevalent market rate. You may also have to pay additional costs to your old lender to close the loan, apart from making several visits to your home branch.

Sell the property

If none of these scenarios are feasible for the co-applicants, then, they will ultimately have to sell the property and divide the profit, as per the terms and conditions pertaining to their share, as mentioned in the sale deed. This option too is fraught with a lot of paperwork and will be time consuming. One may have to resort to this option, if the sole remaining applicant does not have a good credit score or sufficient monthly salary to service the loan.

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