Does it take two to tango?

By Aisyah Suwardi aisyahs@thestar.com.my

Joint loans are an option available to you when buying a house. With a joint loan, you and the other person who has agreed to take the loan will now have the opportunity to own the property together.

There is no limit as to how many people can take a loan with you but you can only apply for a joint loan with your parents, siblings or spouse aged 18 years old and above but not exceeding 60.

The application process is the same as that of a personal loan. All parties will have to be present while handling the procedures.

Let’s have a look at some of the pros and cons of applying for a joint loan:

Pros

1. Higher accumulated income

Instead of just your income, the bank will evaluate your debt-to-income (DTI) ratio based on the accumulated income between you and your co-joint loaner. The lower your DTI ratio, the less risky you are for the bank – and thus more likely your loan will be approved.

For example,

A’s income: RM4,000
B’s income: RM3,500
Monthly bills: RM1,300 (cars for A+B) +
RM1,500 (rented condo) + RM300 (utilities)
DTI: (RM1,300+RM1,500+RM300) /
(RM4,000+RM3,500) = 0.413

2. Reliable credit score
It will be advantageous if you and your co-joint loaner have reliable credit scores.
Paying your bills on time is also an advantage as it would be easier for banks to approve your loan application if both of you are able to meet the payments on time.

3.Higher success rate

According to a banker, a joint loan has over 60% success rate of approval as compared to a personal loan.

Cons

1. You share the property together

Essentially, any decision that you want to make regarding the property has to be agreed upon by every co-joint loaner. You can’t easily choose to rent out or sell your property if the other parties don’t want to. On selling, the profit obtained will be divided equally.

2. You are responsible for the other party

You have to ensure that the other person pays their share diligently so as not to affect your credit score in the future.

For example, you have already paid your share for that month but the other party didn’t pay, the information will be recorded and later affect your credit score.

3.Loan transfer

In a situation where the other party wants to sell the property, you have to let go of it or you have to buy out his share of the loan. The property and the profit will be divided equally.

In case of death, banks make it compulsory for loaners to apply for Mortgage Reducing Term Assurance (MRTA) or Mortgage Level Term Assurance (MLTA). As for joint-MRTA, only one person’s name will be nominated and the MRTA will cover only half the loan amount.

Case Study:

A and B took a joint loan amounting to RM500,000. A is the one with the name on the MRTA.

Several years later A dies, leaving B with the loan. Since the MRTA was under A’s name, the MRTA payout will cover half of the loan (RM250,000) and B only has to pay the rest of the loan.

But say that this time B is the one who dies instead of A, and B’s name is not under the MRTA. A has to continue paying the loan in full as the MRTA is not under B’s name.

There is an option of putting both names under the MRTA but then you will have to pay extra.

4. Future loan consideration

You can get up to 90% financing for your first and second home. If you take a joint loan, you and your husband can only have two houses with a 90% loan as opposed to four houses if you opted for a personal loan. Your third and subsequent loan will only give you 70% financing.

Do I take a joint loan or a personal loan?

Deciding on whether to take a joint loan or a personal loan to buy a house has always been the dilemma for many people.

Most importantly, you need to choose your joint loanee wisely, as the decision would affect you and your joint loanee for the next few decades.

MRTA and MLTA defined

MRTA is a life insurance plan with decreasing sum assured over time, and it is used just to cover your home loan owed to the bank.

MLTA is a life insurance plan in which the sum assured will not decrease over time. MLTA premium is higher than that of MRTA but the policy is transferable to a new property loan.

This article is part of the StarProperty.my’s upcoming ebook titled Looking for your first house? House-hunting tips in 2018.

Register at bit.ly/househuntingtips2018 to get a free ecopy.

To Read More: Considering taking a home loan?

To Read More: What happens to your housing loan when you die?

To Read More: Can your foreign spouse finance your housing loan in the event of your death?

To Read More: Is it essential to pay attention to the lock-in period of home loans?

To Read More: How to speed up the loan process