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Difference Between Co-borrower, Co-signer, Co-owner In Home Loan! Explained
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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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While availing a home loan, you must know and understand all its aspects. You must be aware of the various terminologies used by the lenders to make an informed decision. For example, did you know that though terms like a co-borrower, co-signer and a co-owner are used interchangeably, they are different from one another? To help you clear the confusion, we’ll help you with the details about each term to know the differences.
Co-borrower
A person availing a home loan with the primary borrower is called a co-borrower. He/she is equally responsible for paying the EMI of the home loan. If the primary borrower fails to repay the loan amount, the co-borrower has the responsibility to pay the loan amount. Also, in case of the death of the primary borrower, the responsibility to repay the loan amount o falls on the co-borrower. A co-borrower doesn't need to be the co-owner of the housing loan. However, he can claim the tax benefits on the loan if he is also the co-owner of the house.
When you take a loan with a co-borrower, it is called a joint home loan. Co-borrower(s) of a joint home loan can only be the borrower’s spouse, parent or siblings. A minor cannot be a co-borrower. The co-borrower must fulfil all the eligibility of a housing loan like having a stable source of income, high credit score, etc.
Co-owner
The co-owner has an equal stake in the home loan as well in the house property being purchased. Usually, lenders prefer the co-owner to be the co-borrower as well. However, not all co-applicants are co-borrowers or co-applicants.
Co-signer
A borrower can have a co-signer for his home loan if he is unable to fulfil the eligibility due to a low credit score. A co-signer signs the loan agreement along with the primary borrower and can take the surety of the borrower. Leveraging the high credit score of the co-signer, the borrower can enhance his eligibility and even get a lower rate of interest. Also, it becomes easier to get approval on the loan if the co-signer has a high credit score.
Typically, the co-signer does not need to pay the equated monthly instalments on the home loan. However, they are legally and equally responsible for the loan repayment in case of default by the primary borrower. A co-signer does not have any right on the loan amount. He/she cannot avail tax benefits on the same. They also do not have any title on the property they are co-signing. Moreover, by being a co-signer, their credit score is at risk as the housing loan is recorded in their credit history and can affect their credit score.
Though there are very slight differences between the three, they have a significant financial responsibility attached to them. Before you plan to play any of these roles, ensure that you know the responsibility and liability attached to them. You must scrutinise all the documents required for home loan closely and consult a professional expert if needed.
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