NRIs and PIOs are a key segment of residential property consumers. Many NRIs buy residential properties in India for their loved ones in India or for investment purposes. Keeping in mind the huge demand of home loans among NRIs and the unique regulatory requirements, most banks and housing finance companies offer specialised home loans to service them.
According to Business world, Keeping in mind the huge demand of home loans among NRIs and the unique regulatory requirements, most banks and housing finance companies offer specialised home loans to service them.
Here 7 things about NRI home loans:
1. Loan eligibility: Like for resident Indians, eligibility for NRI home loans would too depend on your credit score, existing loan obligations and disposable income. In case of NRIs working in countries with restrictive repatriation policy, only the repatriable income will be considered for loan eligibility. Additionally, some lenders may also consider the educational qualification and the period spent abroad while considering the loan applications. As poor credit would reduce your home loan eligibility, fetch your credit report and fix errors, if any, before making home loan application. Alternatively, you can fetch your credit reports from online lending marketplaces and get customised loan offers from lenders on the basis of your credit score, income and other eligibility parameters.
2. Loan tenure & EMI affordability: Most lenders offer home loan tenures of up to 30 years, depending on your profession, repayment capacity, etc. However, some like ICICI Bank and HDFC offer loan tenures of up to 20 years only. Try opt for a shorter loan tenure as a longer tenure would increase your interest cost. However, as a shorter tenure will increase your EMI amount, factor in your cash flows and upcoming financial goals while deciding your loan tenure.
3. Power of attorney: Although not compulsory in terms of regulatory provisions, most lenders insist on a Power of Attorney (POA) as the borrower will not be based in India and the lender may need someone to deal with, if some loan- or property-related issue crops up. Usually, lenders prefer the POA to be drawn on the borrower’s parents, spouse or children.
4. Sources of funds for loan repayment: Your loan has to be repaid through your remittances sent from abroad through normal banking channels or through the funds held in your NRO/NRE/FCNR accounts. You can also use the rental income derived from the property financed through the said loan for repaying it.
5. Loan-to-Value (LTV) Ratio: This ratio determines the proportion of your property value that you can finance through a loan. Rest of the amount has to be financed from your own sources. Currently, the RBI has capped the LTV ratio at 90% for home loans of up to Rs 30 lakh; 80% for home loans above Rs 30 lakh to up to Rs 75 lakh; and 75% for home loans above Rs 75 lakh. However, lenders will fix your LTV ratio after considering their various risk-assessment parameters. Try to opt for a lower LTV ratio as that will translate into lower interest cost.
6. Interest rate type: Home loan interest rates come in three varieties – floating, fixed and mixed rates. While floating rates keep changing during the tenure and the fixed rates remain constant, interest rates of mixed-rate loans stay fixed for a pre-stated period after which they become floating rates. Opt for floating-rate home loans as they do not penalise pre-payments. Keep in mind that most lenders allow their borrowers to change from fixed to floating rates and vice versa on paying a switching fee.
7. Loan reset frequency: All fresh bank home loans since April 2016 are required to follow MCLR-based interest rate regime. Under this regime, banks have to compulsorily reset the lending rates of each borrower at least once in a year on pre-specified date(s). The interest rate prevailing on the reset date remains applicable till the next reset date. Thus, if you are expecting the interest rates to fall in future, opt for a loan with the higher reset frequency as it will lead to faster cuts in your interest rate. Similarly, opt for a loan with an annual reset date if you expecting the rates to rise in future.