Repay Home Loan or Invest While Borrowing in 2026?

A Long-Term NRI Case Study with Returns, FX and Repatriation Impact

NRIs often face a fundamental wealth decision:

Should I repay my home loan early, or keep the loan and invest my surplus into Indian equities?

The answer is not intuitive — especially when:

• Loans are on a diminishing balance

• Investments are in India

• Money is eventually repatriated back to Canada or Dubai

• Currency depreciation plays a major role

This article compares both options using real market data, realistic FX impact, and long-term outcomes.

Assumptions Used in This Analysis

• Investment horizon: 15 years

• Investment vehicle: Indian equities (Nifty 500)

• Long-term Nifty 500 CAGR: 12%

• Loan type: Home loan / secured borrowing on diminishing balance

• Repatriation back to Canada or Dubai at the end

• No tax arbitrage assumed (tax varies by residency)

Borrowing Cost (Secured Loans)

For modelling, we use a 5% average borrowing cost.

FX Reality (20-Year Averages)

Long-term INR depreciation (rounded averages):

This FX drag reduces realised returns when money is repatriated.

Case Study

Profile

• NRI with property outside India

• Outstanding home loan: ₹50 lakh (equivalent)

• Loan interest: 5% (diminishing balance)

• Alternative: invest ₹50 lakh into Indian equities

Option 1: Repay the Home Loan

Loan Impact (Diminishing Balance)

• Principal: ₹50,00,000

• Interest rate: 5%

• Tenure: 15 years

Approximate total interest avoided by prepaying early:
₹30–35 lakh

This equals a guaranteed, risk-free 5% return.

Outcome

• No debt

• No FX risk

• No market risk

• No reinvestment upside

Option 2: Invest While Carrying the Loan

Investment Growth (India)

₹50,00,000 invested at 12% CAGR for 15 years:

Future value in INR:
₹50,00,000 × (1.12)¹⁵ ≈ ₹2.74 crore

Adjusting for FX (Repatriation Impact)

Canada (CAD)

Effective return after FX drag:
12% – 3% = ~9%

₹50,00,000 × (1.09)¹⁵ ≈ ₹1.82 crore (CAD-equivalent)

Dubai (AED)

Effective return after FX drag:
12% – 3.3% = ~8.7%

₹50,00,000 × (1.087)¹⁵ ≈ ₹1.77 crore (AED-equivalent)

Loan Cost Over 15 Years (Diminishing Balance)

Approximate total interest paid:
₹30–35 lakh

Net Outcome Comparison

Repatriated Value After Loan Cost

Even after:

• FX depreciation

• Loan interest

• Conservative assumptions

Investing dominates mathematically over long periods.

What This Comparison Actually Means

• Repaying the loan gives certainty

• Investing delivers probabilistic but materially higher wealth

• FX reduces returns but does not eliminate equity advantage

• Time is the biggest driver, not leverage

When Repaying the Loan Makes Sense

• Short time horizon (<8–10 years)

• Low tolerance for volatility

• Psychological discomfort with debt

• Rising or floating interest rates

• Income instability

When Investing While Borrowing Makes Sense

• Long horizon (10–15+ years)

• Stable income and liquidity buffer

• Ability to stay invested during drawdowns

• Comfort with FX and market volatility

• Borrowing cost meaningfully below equity returns
  
  

The Behavioural Truth

Most wealth is lost not because of math, but because of behaviour:

• Panic selling

• Strategy switching mid-cycle

• Prepaying debt at market bottoms

The best strategy is the one you can stick with consistently.

Final Takeaway

For NRIs planning to repatriate money back to Canada or Dubai:

• Loan repayment offers safety and peace of mind

• Investing while borrowing offers significantly higher expected wealth over long horizons — even after FX impact
  
  

The optimal decision depends less on spreadsheets and more on discipline, horizon, and risk tolerance.