Why now is best time for NRIs to prepay home loans in India

Weakening rupee and new rule to stop charging pre-payment charges on floating rate loans

Planning to prepay your home loan in India? This might just be the time to do so.

And that’s because of a weakening Indian Rupee, which was at Rs14.17 (April 21 at 6.30 pm UAE time) against the UAE dirham.

The Reserve Bank of India has also decided to stop banks from charging pre-payment charges on floating rate loans.

Suresh Kaushik, who bought an apartment in Mumbai five years back, says: “I took a loan with floating interest rate, which is quite high for me.

“Although my bank did allow me to prepay a portion of my loan every year, which I was doing.

“For a full loan prepayment, the bank was going to charge me two per cent as penalty.

“Now that the penalty is gone, I am planning of clearing off my loan.”

He is currently paying 10.75 per cent for his 15-year loan on floating interest rate basis.

Kaushik adds: “Luckily the exchange rate is good. I will get a few thousand more on remitting now.”

Dominick D’Souza purchased a two-bed apartment in Bangalore in 2002 with a 20-year home loan tenure.

“Like most of the NRIs here in Dubai, I also bought a house back home.

“For the past 10 years, I have been paying the EMIs regularly. Well, I will be remitting money soon but this time I plan to use the fund to pay off my remaining loan.”

D’Souza says he took the loan at 8.75 per cent floating rate, which rose to a high of 13 per cent at one point, but now is at 11 per cent.

“My first priority is to repay my home loan so when I leave for good I don’t have the burden of paying my home installments.

“I want to relax, live a peaceful, retired life,” he quips.

Om Ahuja, CEO - Residential Services, Jones Lang LaSalle India, told Emirates 24|7 thinks pre-payment of home loans will make a lot of sense to NRIs now.

“Any remittances to settle outstanding loans will benefit them on two fronts - the currency levels are now attractive for remittance, and there are no longer any prepayment penalties on floating rate loans.”

In general, the global real estate consultancy expects the Apex Bank's rate cut will offer a modicum of relief to aspiring home buyers.

“It is to be hoped that lending institutions will pass on the full benefit to home buyers availing of home loans.

“Many buyers were sitting on the fence waiting for a trigger to take decision on buying a home.”

But on the flip side, he believes developers will may start increasing capital values on the basis of the improved demand scenario.

“This may vary from project to project, and would certainly hold true in areas where demand exceeds supply,” Ahuja informs.