How A Joint Loan Can Affect Your Financial In Future

Nowadays, many people are looking the ways to create wealth through investment and one of the most popular investments is investing in property market as they can earn massive profits from property appreciation over time.

If you plan to get involved in property investment field along with your spouse in order to create your retirement funds, travel funds or for your children education funds in future, here are 3 things that you should consider;

margin of finance

① Joint loan will limit the amount of future loan

Most of the couples are like to taking a joint loan to buy a property as individual income is not qualify for a larger loan amount. But, if you applying a joint loan with your spouse, it will limit your margin of finance for property investment in the long run.

For your information, some banks may set up the rules that each individual can borrow the loan up to 90% for his/her first or second residential property purchase and he/she can only get the loan amount up to 70% for their third property purchase.

If you and your spouse are plan to extend your property investment by buying more properties, applying for a joint loan may limit your loan amount in the future.

By applying an individual loan, you and your spouse can potentially get up to four 90% home loans for residential properties compared to those who have only two 90% joint home loans. Well, your third residential property financing will decrease to 70%, which means now you will need to use your own money to pay another 30% for down payment, instead of the usual 10%.

If you don’t want to use your own money to pay the down payment, you can consider to refinance the first two home loans that under your name and apply for the third home loan under your spouse’s name.

RPGT

② You will lose the chance of RPGT exemption benefits

Announced in Budget 2014, the Real Estate Property Gains Tax (RPGT) has been increased to 30% for the first three years, followed by 20% and 15% for the fourth and fifth year respectively when an individual sell out a property. Well, if the property owners sell out their property after sixth years from the purchase date, then it is tax-free.

As Malaysians, we are entitled to get a once in a lifetime chance to take a tax free housing loan and only will be charged tax for any subsequent loans.

By combining the property investment, you and your spouse can only enjoy the tax exemption only once. But, if you both take loans separately and individually, you both can then enjoy the tax exemption as individuals, which is twice.

Credit Score

③ Your individual credit score will affect your spouse

Since you taking up a joint loan, your credit score is essentially linked to your spouse/ partner. If you have an excellent credit history, but your spouse doesn’t, the chances that you will get the larger loan amount is very low or even your loan application will be rejected by the bank.

Hence, you will need to check on your spouse credit score before applying for a joint loan. But, your individual income may only qualify for a small loan amount from what your both incomes could otherwise qualify for. In that case, you will need to help your spouse to adjust his/her repayment behavior until the credit score turn to positive. To improve your credit score, you can just have to pay your bills on time such as credit card, car loan, personal loan, utilities bill (under your name) and no more late payment.

In conclusion, taking up a joint loans can be only favorable if you’re work hard to increase your eligibility for a larger loan amount. But, if you plan to extend your property investment career by buy in more properties in future, or your individual income allow you to borrow the home loan amount that you need, you should go for individual loan instead. Whichever option that you choose to take with your partner, do make sure you both have understand how a joint loan can affect you both financials in long run.

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