Abroad house purchase: Partial or Full loan

POSTED BY investngrow ON February 8, 2012 3:45 pm COMMENTS (11)

Hello Investors,

I am in dilemma for quite some time so thaught of having your valued feedback.

I live abroad and have plans of buying a house this year. I have made some saving for this
My initial plan was to finance around 50% (around 100k€) from my saving and rest through bank loan.

Since the NRE deposit rates have gone up and as the loan rates are very attractive here (~4.5%), now I am thinking to go for 100% Loan (which is possible here) . I can repatriate back the money from India when I am planning to sell the house

Only risk involved here is forex rate fluctuation.
What is your opinion on this?

Regards,
Investngrow

11 replies on this article “Abroad house purchase: Partial or Full loan”

  1. Dear Jig, Are you asking to purchase property in India (it seems you are not allowed to purchase in the country you are working in). The final decision ‘ll be yours’ as what you want to do with your money. As an investment class, real estate is not the very best.

    Thanks

    Ashal

  2. Dear Investngrow, Please go ahead & purchase for 100% loan amount. Use the Interest from the NRE deposits to help you pay out your regular EMIs.

    Thanks

    Ashal

  3. BanyanFA says:

    NRE FD rates are excellent opportunities for NRIs and are a recommended option.
    We have for several clients got this NRE FDs structured whereby the NRE interest payouts are routed to monthly investments into Equity SIPs.

  4. Jig says:

    Dear BFA,
    I am an NRI and though i have asked to invest in NRE FD.

  5. BanyanFA says:

    Hi Jig,
    In order to answer your comment appropriately, may I ask if you are an Indian resident or a NRI ?

    Regards
    BFA

  6. Jig says:

    What will be situation if one cant buy property abroad. should he invest savings/loan in property or NRE deposit ?

  7. BanyanFA says:

    Great. I think you are in a very good place as rarely with 100% loan to value the EMI can match the rent. Generally this happens when the Loan to value is approximately 70-80%.

    Enjoy your property ladder.

  8. investngrow says:

    BFA:Thankyour for you feedback, yes your are right no need to repatriate back the money if I want to sell.
    Ashal: Even if I go for 100% Loan, EMI for 20 years will be around 1200€ Which is around 300€ more than the house rent I pay. Down the lane I think the rent and EMI would be matched.
    investngrow

  9. Dear investngrow, is this house for self consumption or for investment purpose? Also please do tell the possible EMI for 50-75-90-100% loan amount & what %age of these EMi ‘ll become of your regular salary?

    Thanks

    Ashal

  10. Dear investngrow, the simple answer to your query lies in the practices adopted by a lot of indian cos. As on date Indian interest rates are very high so a lot of Indian cos. are paying their Indian loans from the foreign loans.

    The low rate of interest in other countries is making this arbitrage possible & attractive.

    Yes the currency fluctuation risk is involved in this strategy. 50% or 75% or 90% or 100% loan ‘ll be your personal call for the EMI you are comfortable with.

    Thanks

    Ashal

  11. BanyanFA says:

    Hi,
    You have a valid point. Since the deposit rates in India are high for NRE – it makes sense to be invested in India and take a cheap loan in your foreign country. I have done the same in my case as well. I am paying minimum possible for my house abroad and maximum is getting invested in India.

    When you need to sell your house, you probably may not require to sell your investments in India. Would it not be possible for you to repay your loan in your country (foreign) with the sales proceeds of your House ?

    Alternatively, you can consider your foreign property as an investment asset. You can consider to hold it till foreseable future so that you can use the rental income of that property (if you intend to move to another property) to pay for the monthly mortgage payments. I may suggest you to take only that much percentage loan where by your rental value of the property is equal or slightly more than the monthly mortgage payments. This would then make it safe for you.

    Regards
    BFA

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