Is a home loan balance transfer worth it? Do this calculation first
Moving a ₹47 lakh balance from 9.25% to 8.5% saves ₹4,40,541 in interest — but ₹37,733 of it goes straight back out in switching costs. Here is how to work out your own number.
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· 3 min read
A rival bank offers to take over your home loan at a lower rate. The pitch always leads with the monthly saving. The number that matters is the one after costs.
A worked example
You borrowed ₹50,00,000 at 9.25% over 20 years. The EMI is ₹45,793. Three years in, you have paid down to an outstanding balance of ₹47,00,442 — barely ₹3 lakh off the principal, because the early years are mostly interest.
Stay put and the remaining 17 years cost you ₹46,41,400 in interest.
Another lender offers 8.5% on the same balance and remaining term:
| Stay | Transfer | |
|---|---|---|
| EMI | ₹45,793 | ₹43,634 |
| Interest still to pay | ₹46,41,400 | ₹42,00,859 |
Gross interest saved: ₹4,40,541. Monthly saving: ₹2,160.
Now subtract what it costs to move
This is the part the sales call skips. On a 0.5% processing fee plus GST, and ₹10,000 of legal and valuation charges:
| Cost | Amount |
|---|---|
| Processing fee (0.5% of ₹47,00,442) | ₹23,502 |
| GST at 18% | ₹4,230 |
| Legal, valuation, documentation | ₹10,000 |
| Total | ₹37,733 |
Net saving: ₹4,02,808.
Still clearly worth doing — but the costs ate roughly 8.6% of the benefit, and on a smaller rate gap they can eat all of it.
The rule of thumb, and why it is only a rule of thumb
You will hear "transfer if the gap is at least 0.5%". That is a reasonable starting filter, but the real answer depends on three things the rule ignores:
How much term is left. A rate saving compounds over remaining years. With 17 years to run, a 0.75% gap is decisive. With four years left, the same gap moves very little while the fees stay the same.
How large the balance is. Fees scale with the balance; so does the saving. But flat charges — legal, valuation — hurt small balances disproportionately.
Whether you reset the tenure. This is the trap. Many transfers quietly restart the clock at 20 years. Your EMI drops pleasingly and your total cost goes up. In the example above the term stays at the remaining 17 years. If it reset to 20, the comparison is meaningless.
Questions to ask before signing
- What is the all-in cost in rupees? Processing fee, GST, legal, valuation, CERSAI, stamp duty on the new mortgage. Get a number, not percentages.
- What tenure is the new loan? It must match your remaining term for the saving to be real.
- Is the rate a teaser? Some offers are low for 12–24 months and then revert. Ask what the spread over the benchmark is, because that is what you actually keep.
- Is any insurance bundled? Loan protection premiums are frequently added to the transferred amount.
- What does my current lender say? Often the cheapest transfer is the one you do not make — ask your existing lender to match. A rate reduction on your current loan usually costs a small conversion fee and none of the legal work.
That last point is worth trying first. It costs one phone call.
Run your own numbers
You need your current outstanding balance and your remaining tenure — both on your latest statement — not the original loan amount. Put the outstanding balance into the home loan calculator at your current rate and remaining term, note the interest, then change the rate and compare. Subtract the switching costs from the difference.
If the answer is close, it is not worth the paperwork. If it looks like the example above, it is.
General information, not financial advice. Fees and terms vary by lender and by borrower — confirm everything in writing before you commit.
A reminder: this article is general information about how loans work in India, not personalised financial advice. Your circumstances, tax position and the terms in your own loan agreement all change the right answer. For a decision of any size, talk to a qualified adviser.