NRI home loan after RBI rate hike: Should borrowers increase down payment or retain overseas savings? Experts explain

Non-resident Indians (NRIs) with home loans in India may face higher equated monthly instalments (EMIs) after the Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 5.50% on Wednesday.

The increase could push up borrowing costs for NRIs with floating-rate home loans if banks pass on the entire 25-basis-point hike to their lending rates.

The rate increase also raises an important question for NRIs planning to buy property in India: should they use more of their overseas savings for the down payment to reduce the loan burden, or retain those funds to maintain liquidity?

Should NRIs increase their home loan down payment?

Experts said NRIs should not make home loan decisions based solely on the prevailing interest rate. Instead, they should assess their overall financial position, including liquidity, income stability, investments and existing financial obligations in both India and their country of residence.

Hitesh Jain, Founder and CEO of Finomatic, said: “NRIs must balance the rising EMI burden against the opportunity cost of deploying their savings towards a larger down payment. While higher interest rates increase borrowing costs, market corrections may also create attractive long-term investment opportunities. Using excessive savings to reduce a home loan could mean sacrificing potentially higher investment returns.”

Finomatic is a fintech platform and AMFI-registered mutual fund distributor.

“The decision should consider the effective home loan interest rate, expected post-tax investment returns, currency movements, EMI affordability and liquidity requirements,” added Jain.

A higher down payment reduces the amount borrowed and, consequently, the total interest payable over the tenure of the loan. However, committing a large portion of overseas savings towards the property can leave borrowers with limited funds to meet emergencies or other financial needs.

Ankur Choudhary, CEO and Co-Founder of Belong, said: “For an NRI, the decision should not be based only on the home loan rate. A larger down payment reduces the outstanding principal and therefore the interest burden, but using too much overseas savings can leave the investor with limited liquidity, particularly if they have other financial commitments in the country of residence.”

Belong is a GIFT City-based NRI Investment platform.

“The right balance depends on the NRI’s liquidity needs, income stability, existing investments, expected returns on their savings, currency exposure and the cost of borrowing. If the return available on surplus savings is materially lower than the effective cost of the home loan, increasing the down payment can make financial sense.” Choudhary added.

Therefore, NRIs need to strike a balance between lowering their debt burden and maintaining sufficient cash reserves.

“Rather than maximising the down payment, NRIs should maintain adequate liquidity, keep EMIs comfortably manageable and invest surplus funds based on their risk appetite and investment horizon,” said Jain.

How RBI rate changes affect NRI deposits

NRIs should also consider where their savings are held before deciding how much money to put into a property.

RBI policy-rate changes can influence the interest rates offered on NRE and NRO deposits. FCNR deposits, however, operate differently because they are maintained in foreign currencies and their rates are influenced more by the interest-rate environment in the relevant overseas currency markets, including US Federal Reserve policy for dollar-denominated deposits.

This means NRIs should compare the return they could earn by retaining their overseas or NRI deposits with the potential interest savings from making a larger home loan down payment.

What should NRIs consider before choosing their EMI?

Experts said borrowers should evaluate the EMI as part of their overall cash flow rather than simply opting for the shortest or longest possible loan tenure.

The interest rate and whether the loan carries a fixed or floating rate are among the key factors to consider. NRIs should also assess the loan tenure, prepayment conditions, income and expenses in the foreign currency, and possible exchange-rate movements.

Existing financial commitments in both India and the country where the NRI resides should also be factored into the decision.