What a balance transfer is
In a balance transfer, a new lender pays off your existing home loan and you repay the new lender instead. The goal is usually a lower rate. Your property's documents move to the new lender, and the new lender assesses your eligibility and the property much as it would for a new loan.
Why the remaining term matters most
Interest is largest early in a loan, so a lower rate saves far more when a lot of the loan is still ahead of you. Compare these examples, which assume the rate stays the same until the end.
| Loan left | Rate change | EMI saved | Interest saved |
|---|---|---|---|
| ₹40 lakh, 15 years | 9.5% to 8.5% | ₹2,379 | ₹4.28 lakh |
| ₹40 lakh, 15 years | 9.5% to 9% | ₹1,198 | ₹2.16 lakh |
| ₹15 lakh, 5 years | 9.5% to 8.5% | ₹728 | ₹43,680 |
The same one-point cut saves about ₹4.28 lakh on the larger, longer balance but only ₹43,680 on the smaller, shorter one.
The costs to include
A transfer usually isn't free, and charges vary widely. Ask for an itemised list, including GST:
- Processing fee at the new lender, which is often a percentage of the loan and is sometimes reduced or waived in offers.
- Legal and valuation charges for checking the property again.
- Mortgage or stamp costs for creating the new mortgage, which depend on your state.
- Charges at your current lender. Prepayment charges may not apply to an individual's floating-rate home loan, but check your agreement, especially if your rate is fixed. Ask about any fee for collecting your documents as well.
- Insurance. If your loan is tied to a policy, ask what happens to it.
Work out your break-even point
Break-even in months = total transfer cost ÷ EMI saved each month
Here are the same examples, using illustrative costs of 0.5% of the loan plus ₹15,000. Your own quotes may be higher or lower.
| Example | Cost | Break-even | Verdict |
|---|---|---|---|
| ₹40 lakh, 15 years, 1 point lower | ₹35,000 | 15 months | Worth a look |
| ₹40 lakh, 15 years, 0.5 point lower | ₹35,000 | 30 months | Compare with a rate cut first |
| ₹15 lakh, 5 years, 1 point lower | ₹22,500 | 31 months | The benefit is small |
Also compare the loans over the same remaining tenure. A new lender may show a tempting EMI by stretching your term, which can leave you paying more interest overall.
Try your current lender first
Many lenders will reduce your rate for a conversion or switch fee, without a new application or new legal work. If your loan was taken some time ago, you may be paying a higher spread than new customers. Ask what rate they can offer and what it costs, then compare that with the transfer on the same basis. It's often the simplest option, and it can also give you something to negotiate with.
Be careful with a transfer plus top-up
New lenders often offer a top-up loan with the transfer. It can be useful for a real need, but it raises your debt, and the extra interest can wipe out what you save. Compare the transfer without the top-up first, and check what rate the top-up itself carries.
How the process usually works
- Get your current details. Ask for your outstanding balance, and a list of the documents your lender holds.
- Compare offers. Check the benchmark, spread, charges and how often the rate is reset, not just the headline rate.
- Apply to one lender. A new application can add a hard enquiry, and your score and income will be checked again. Check your numbers in the home loan calculator first.
- Get the foreclosure letter. Once the new loan is sanctioned, your current lender gives you a statement of the amount to close the loan.
- Complete the switch. The new lender pays off the old loan, and your property documents move across. Keep paying your existing EMIs until the transfer is confirmed.
- Close it properly. Collect a No Dues Certificate, check that your documents are all returned, and confirm that your credit report shows the old loan as closed.
When not to transfer
- Only a few years or a small balance are left.
- The rate gap is small and your break-even is years away.
- Your income or credit score has fallen, so a new lender may not offer a better rate.
- You plan to sell the property or repay the loan soon.