As dual-income couples increase, more people are buying a home with a "pair loan." The big appeal is that you can increase your borrowing amount and use the mortgage loan tax credit for both spouses. On the other hand, there are serious risks that are easy to overlook: the group credit life insurance covers only your own share of the borrowing, the joint guarantee does not disappear even if you divorce, and getting the ownership shares wrong can incur gift tax. This article organizes the difference from the similar-but-distinct "joint-debt type" and "joint-guarantee type," and then explains the tax issues (mortgage loan tax credit and gift tax), the group credit life insurance, and divorce, so that you have the material to make a decision.
What is a pair loan?
A pair loan is a method in which two people, such as a married couple or parent and child, each take out a separate mortgage loan on the same property. There are two loans, each person is a debtor, and they act as joint guarantor for each other's loan. The property is held under joint ownership by the two, and the ownership shares are, in principle, decided by the proportion of funds each contributed (own funds + each person's loan).
First, sort out the three easily confused methods
There are broadly three ways for a couple to borrow when buying one home. This is the most important point because the credit, the group credit life insurance, and the incidental costs each differ.
| Item | Pair loan | Joint-debt type | Joint-guarantee type |
|---|---|---|---|
| Number of loans | 2 (each person contracts) | 1 | 1 |
| Who bears the debt | Each of the two + joint guarantor for each other | Principal debtor + joint debtor (both for the full amount) | Principal debtor only (the other is a joint guarantor) |
| Mortgage loan tax credit | Both can use it | Both can use it (according to the burden ratio) | Principal debtor only |
| Group credit life insurance | Each person enrolls for their own debt | Centered on the principal debtor (some products offer a joint-life type) | Principal debtor only (guarantor cannot enroll) |
| Incidental costs such as administrative fees and registration | Two loans' worth is incurred | One loan's worth | One loan's worth |
| Property title | Joint ownership (two people) | Joint ownership (two people) | Generally sole ownership by the principal debtor |
If "both earn solidly and we want the credit and the group credit life insurance for both," choose a pair loan. If "we want to hold costs down with one loan but both use the credit," choose the joint-debt type. If "the other person only needs to guarantee," choose the joint-guarantee type. It comes down to which you prioritize: the credit, the group credit life insurance, or cost.
Advantages of a pair loan
- The borrowable amount increases: Because it effectively combines two people's incomes, it becomes easier to reach a property that one person alone could not.
- The mortgage loan tax credit can be used for both spouses: Each spouse can receive the credit according to their own outstanding loan balance. As a household, you may be able to make large use of the credit frame (explained later).
- Each person can enroll in group credit life insurance: Coverage is attached to each person's debt.
- The interest-rate type and repayment period can be designed individually: One can be fixed and the other variable, and other such combinations are possible.
Risks and disadvantages of a pair loan
With a pair loan, even if one person dies, the group credit life insurance pays off only that person's share of the borrowing, and the surviving spouse's loan remains as is. It is dangerous to assume that "if anything happens to either of us, the entire home loan disappears." To prepare for the worst, consider a product that handles joint-life group credit life insurance (for couples), under which both remaining balances are repaid when either spouse dies or becomes severely disabled (an interest-rate add-on is common), or covering it with a separate life insurance policy.
- Incidental costs for two loans: Administrative fees, stamp duty, mortgage registration, and the like are incurred for two contracts, increasing the initial costs.
- It tends to become complicated at divorce: The loans and joint ownership remain, making sale and title clean-up difficult (explained later).
- Weak against income drops, retirement, and leave: Because it is built on the premise of two people's repayments, if one person's income falls due to maternity leave, childcare leave, a job change, or illness, it tends to strain the household budget.
- Joint guarantor for each other: If the other person becomes unable to repay, you bear the obligation to cover for them.
- The credit may not be fully used: The lower-income side may have a credit amount that exceeds their tax due and cannot be fully used, which can weaken the merit of taking it out as a couple.
[Tax 1] Using the mortgage loan tax credit for both
The mortgage loan tax credit (special credit for housing loans, etc.) is a system that reduces income tax (with part of what cannot be credited applied to residence tax) according to the year-end loan balance. The current basic rules are as follows.
The credit rate is 0.7% of the year-end balance, the credit period is 13 years for new builds, etc. and 10 years for existing homes, and requirements for application include total income of ¥20 million or less[National Tax Agency No.1211-1]. The borrowing limit changes with the home's energy-saving performance (long-term quality housing, ZEH-level, conformity to energy-saving standards, and so on), and for new builds, conformity to energy-saving standards is in principle mandatory. Furthermore, child-rearing households and young married-couple households (having a dependent relative under 19, or one of the spouses under 40) get an add-on to the borrowing limit.
With a pair loan, each spouse can credit their own outstanding loan balance × 0.7%, within the range of their own borrowing limit. In other words, as a household you may be able to make large use of the credit frame. On the other hand, the lower-income side may not be able to fully use the credit, so it is wise to decide the allocation of the borrowing while also considering the credit merit. Check the latest borrowing limits and requirements in the Guide to the mortgage loan tax credit and materials from the Ministry of Land, Infrastructure, Transport and Tourism and the National Tax Agency.
Wife's credit (guide) = ¥16 million × 0.7% = about ¥112,000
* The credit applies within the range of each person's income tax and residence tax. If the wife's income is low and her tax amount is small, she may not be able to fully use the credit.
[Tax 2] A mistake in the ownership shares becomes gift tax
The overriding principle is that the ownership shares in joint ownership should match the proportion of money actually contributed (own funds + each person's loan burden). If the proportion contributed and the ownership shares diverge, the difference can be deemed to have been "received" from the other person, and gift tax can be incurred.
If the husband bore 70% through the down payment and loan, but the registered ownership shares are set to "an amicable half each," the difference (equivalent to about 20%) may be deemed a gift from the husband to the wife[National Tax Agency No.4402]. Register with ownership share = burden ratio. If you are unsure of the judgment, check the basics of gift tax (the gift tax tax-free allowance) as well, and consult a tax accountant.
What happens if you divorce?
The point at which a pair loan most easily becomes contentious is divorce. The loan contract and joint guarantee do not disappear automatically even if you divorce. The main options and cautions are as follows.
- Sell the home: If the sale price exceeds the remaining loan balance (an under-loan), it is easy to sell and settle up. If the remaining balance exceeds it (an over-loan), you cannot sell unless you fill the difference with your own funds.
- One person keeps living there: The person staying needs to take on the other's share and refinance into a single loan, but often the review will not pass on one person's income and it cannot be consolidated.
- The joint guarantee remains: Unless you refinance or pay off, you remain a joint guarantor of the other person's loan even after divorce, and if they fall into arrears, the demand comes to you.
It is important to simulate, before taking it out, whether it will be "a repayment amount that can be consolidated at divorce."
Who a pair loan suits and who should think carefully
Often suitable
- Both have stable income that is likely to continue for the time being
- Both have sufficient income and can fully use the credit
- Able to prepare for the death risk with joint-life group credit life insurance or life insurance
- Able to accept the incidental costs of two loans
Think carefully
- One person's income is low / may decrease going forward (maternity leave, job change, etc.)
- The borrowing amount is large, and repayment or refinancing is difficult for one person
- No preparation for the risk of a remaining balance at death
- The ownership shares and burden ratio are unclear
FAQ
Which is better, a pair loan or the joint-debt type?
Both let two people use the mortgage loan tax credit. The difference is that a pair loan has two contracts and each person can enroll in group credit life insurance, but the incidental costs are for two loans. The joint-debt type is one loan and can hold incidental costs down, but the group credit life insurance is centered on the principal debtor (except for joint-life products). If you prioritize group credit life insurance for both, a pair loan; if you want to hold costs down, the joint-debt type is one option.
If the husband dies, does the entire home loan disappear?
With a pair loan, only the deceased person's share of the borrowing is paid off by the group credit life insurance. The surviving spouse's loan remains. If you want to cover both, consider preparing with joint-life group credit life insurance or life insurance.
How should I decide the ownership shares?
Register them to match the "proportion actually contributed," combining own funds and the loan. If the burden ratio and ownership shares diverge, the difference may be deemed a gift and gift tax may be incurred.
Can a pair loan be dissolved if I divorce?
The contract and joint guarantee do not disappear automatically. You need to either sell and settle up, or have the person who keeps living there refinance into a single loan, but there are cases where consolidation is difficult on one person's income.
Summary
Reference links (sources)
This article is prepared based on materials from the following public bodies (neutral, primary sources). Borrowing limits and requirements are revised, so please check the latest content before contracting. The coverage of group credit life insurance differs by each financial institution's product.
- Ministry of Land, Infrastructure, Transport and Tourism — Mortgage loan tax reduction (in Japanese)
- National Tax Agency No.1211-1 Special credit for housing loans, etc. (when newly building a home, etc.) (in Japanese)
- National Tax Agency No.1210 Acquisition of one's own home, etc. and the income tax credit (in Japanese)
- National Tax Agency No.4402 When gift tax applies (in Japanese)
* This article is general information provision and is not tax or financial-product advice. For specific decisions on borrowing design, ownership shares, and the choice of group credit life insurance, please consult professionals such as a financial institution, tax office, tax accountant, or financial planner.