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Mortgages for Expats in India

Author: Jim Newham
Submitted: September 2013

The potential market for non-Indian buyers in India is starting to be realised. As a result of this, an increasing number of banks are offering special mortgage deals for non-residents. It is important to be aware how negotiable many financial matters are in India. To some extent, you may be able to bargain over terms, fees, rates and other aspects of the mortgage.

Requirements

In most cases, Indian residents enjoy more favourable terms than non-residents. The loan-to-value ratio (LTV) for a resident is around 80% when buying a property worth more than ₹2,000,000, and 90% for a property worth less than that amount. Internationally speaking, this is quite a generous ratio. The repayment period of the loan is up to 30 years, and repayment can be made through any normal bank account.

Non-residents can expect a slightly lower LTV of around 70-85%. However, the repayment period of the mortgage is, at 5 to 15 years, very short – maybe prohibitively so for less wealthy buyers. Furthermore, interest rates are somewhat higher than for resident loans, and payments must be made through either a Non-Resident External or a Non-Resident Ordinary account. If at any point, however, a non-resident becomes an Indian resident, the terms of the mortgage will be altered accordingly.

Loan-to-value ratios may be influenced by the borrower’s income level. For most banks, the maximum amount of loan that the lender will award is between 36 and 40 times a person’s gross monthly income. Banks will also restrict the proportion to be repaid relative to a borrower’s net monthly income to around 40-60%, depending on the amount of that net income. Note also that there is generally an upper age limit for mortgage applicants.

Mortgage types

Mortgage interest rates are relatively high in India, at around 10-15%. As is usual for mortgages, there are both adjustable and fixed interest rate repayment schemes available, with interest rates being lower for the former. Fixed-rate mortgages can either be for the full term or a portion of the term (note that the length of this portion may be negotiable).

For adjustable rate mortgages, if the interest rate goes down, banks will change the interest rate generally but may not do the administration in your case. This means you will have to contact the bank and pay administration fees to get the rate lowered manually. Also, if the interest rate goes up, rather than alter the monthly repayment amount, some banks prefer to increase to the term of the mortgage.

Some lenders offer more flexibility with repayment. If requested, they will arrange for the repayments to be graduated, either starting low and building up or starting high and decreasing. Furthermore, with most banks, you can make lump sum pre-payments, though there may be a charge of 2-3% of the total mortgage principal outstanding.

Application

Having decided on which bank or other lending institution to work with, you will need to open an account with your designated lender. You may also be required to have a guarantor. This must be family member or other close relative resident in India.

In addition to the mortgage application form, documents you will need to apply for a mortgage include:

  • Passport, driving licence or other means of ID
  • Proof of address
  • Employment contract, 6 months of bank statements or other proofs of income
  • Photos of the property
  • Property documents (deed of sale etc)

Be aware of the large amount of paperwork involved, and allow plenty of time for your mortgage application to be processed.

 

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