Whether to prepay a housing loan in India

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
curlyfries
Posts: 13
Joined: Mon Feb 16, 2015 5:40 pm

Whether to prepay a housing loan in India

Post by curlyfries » Sat Aug 01, 2020 8:54 pm

I just took out a housing loan in India for my parents, and as per the terms I can pre-pay loan amounts at any time without penalty. I am trying to figure out when this makes sense, and am getting confused because there are competing factors I don't know how to assess.

I earn dollars and convert currency to pay; the rupee keeps depreciating (https://www.xe.com/currencycharts/?from ... R&view=10Y) and is expected to continue doing so. This would indicate not prepaying, except that interest rates are also much higher in India. My rate is a floating ~7.5 percent, which adds up to a decent chunk of interest over a 15 year term.

I can afford to make extra payments, what I am unable to figure out is whether I should. Can you please help me think this through?

User avatar
whodidntante
Posts: 8583
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: Whether to prepay a housing loan in India

Post by whodidntante » Sat Aug 01, 2020 10:38 pm

A loan in rupees is also a short position in rupees. That's why you owe less in dollars if the INR goes down. I would be fine with a short position in rupees, but maybe that would not be good for you.

User avatar
gr7070
Posts: 1257
Joined: Fri Oct 28, 2011 10:39 am

Re: Whether to prepay a housing loan in India

Post by gr7070 » Sat Aug 01, 2020 11:04 pm

Ignoring the value of rupees vs. the dollar the analysis doesn't differ.

The concerns are the same, interest, principal, taxes, term, etc. Of course, interest rate is different than here. Taxes, I presume are different, but reasonably accounted for. There may be other local, legal items involved. Items that are or could be known.

You presume the future value (or at least direction) of the rupee is known. If this were that easily determined would this not be the easiest profit available. I doubt your presumption of the future value of the rupee relative to the dollar is far, far from certain.

I could be wrong, but this seems to be a simple, obvious inappropriate presumption. I'd make the decision based upon the known loan parameters and other direct impacts like taxes, local laws. I'd ignore currency speculation.

I'm certainly open to being wrong based upon other known factors I'm unaware of.

Ignoring all of that, what's the principal value in dollars? Is this a lot of money we're considering?

Post Reply