The Foreign Exchange Management Act (FEMA), 1999, defines NRIs as individuals residing outside the country due to employment, business or some other purpose in a situation which calls for them to remain outside India for an uncertain time period.
Any person sufficing this definition may apply for a home loan in India. Even though an NRI can avail oneself of a home loan with a similar simplicity and convenience as a normal resident, there are several elements distinguishing NRI home loans from standard loans in India.
Greater Rate of Interest:
In contrast to the interest rates that Indian residents need to pay for home loan, NRIs are usually required to pay a 0.25 to 0.5 percent costlier interest.
Home loans are availed to NRIs for relatively a much smaller maximum tenure of between 5 to 15 years, while standard loans by several banks can last as long as 30 years.
The reason behind this limited tenure lies in two commonly noted facts: a greater capability of NRIs to repay the lent amount and their general will to borrow loans of comparatively shorter tenures.
Percentage of Cost Covered:
Unlike standard home loans, the amount, available through NRI loans, provides for at most 80-85 percent of the total worth of the concerned property. And this amount credited by banks is subject to the borrower’s gross monthly income (GMI).
Method of Repayment:
NRIs are only allowed to pay their loan EMIs in the form of direct remittances through the normal banking routes, comprising their Non-Resident Ordinary (NRO) and Non-Resident External (NRE) accounts in India.
Furthermore, to ensure security, most banks insist on keeping the first mortgage associated with the property in their own name.
No Tax Benefits:
NRIs, having no source of income inside India, do not have the facility to claim tax rebates on Indian home loans, since they are required to pay tax in the country identified with their occupation and income.
To sum up, NRI loans are quite distinct from standard loans in India, on account of a number of security and payment capacity factors. If you are an Indian, then you will be taking advantages of different plans and schemes.
In case, you are a non-resident Indian, then you will be having fully different plans and schemes. Therefore, in the light of the above, if you are aspiring for taking loans, it is necessary for you to gather all the required knowledge and information about each and every aspect of loans to be sanctioned to the Indian residents and the non-resident Indians. A wise step will enable you to serve your purpose with complete peace of mind.