Two people may be completely separated legally, but divorce does not automatically mean that the joint home loan taken to buy the house and the responsibility taken earlier regarding the loan also ends.
Who is responsible for paying the home loan after divorce?
What happens to a joint home loan after a divorce? Who is now responsible for paying the monthly EMI? Many such questions may often cross your mind. Let us, through this article, explain the rules regarding bank loans and EMIs before buying a home.
While divorce may legally separate two people, this doesn't mean that any joint loan or financial contract with a bank or other financial institution automatically ends simply because of the divorce. A joint loan is taken out jointly by the spouses. Therefore, the legal and financial responsibility for repaying the joint home loan remains with both partners after the divorce.
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Even though their relationship has ended, both remain co-borrowers to the bank. The terms of the loan agreement signed with the bank remain in effect until the outstanding loan is fully repaid or the bank formally agrees to a modification.
What are the options for repaying a loan after divorce?
- After a divorce, one partner can transfer ownership of the home and the remaining loan amount to their name. The bank will verify your income source and credit score for this.
- Another option is settlement. Both partners can mutually agree to sell the house and use the proceeds to repay the bank loan in full. If any money remains, it can be divided between them.
- If both agree, they can continue paying their respective share of the fixed EMI till the loan is over.
This clearly shows that divorce does not change the loan contract. Therefore, when taking out a joint home loan, it's important to enter into a co-ownership agreement that clearly states who will pay the EMIs and who will retain ownership of the home in the event of a divorce or dispute. When taking out a loan, it's important to always consider whether you are capable of paying the full EMI alone in the event of an emergency.
Rules related to bank loan or EMI
The bank doesn't care whether you're divorced or not. It only cares about its loan. Both partners are legally obligated to pay EMIs until the loan is fully repaid. If one partner refuses or defaults on EMIs, both partners' CIBIL scores will be affected.
Even if the court orders one of the parties to repay the loan in the divorce judgment, both will remain debtors in the bank records until the process of removing one name from the bank (Release Deed) is completed; until then, the bank can recover from both.
