Before shifting a home loan to another lender, weigh these key factors

If your home loan is almost halfway or more towards completion, the benefit of transferring usually drops.

For most Indians, a home loan is the biggest financial commitment of their lives. With loan tenures stretching up to 30 years, even a small change in the interest rate can make a big difference to the overall repayment amount. That’s why many borrowers consider a home loan balance transfer - shifting the outstanding loan from one bank to another - for better terms. But when is it really worth it?

When lower interest rates help

The most common reason to switch to another lender is to take advantage of a lower interest rate. For example, if your current lender is charging you 9 percent while another is offering 8.5 percent, it may seem like a small difference. But over a 20-year loan, it can save you several lakhs of rupees. The benefit is higher if you are still in the early years of your loan, since that’s when you are mostly paying interest rather than principal.

Don’t ignore the costs

However, balance transfer is not free, and banks may charge a processing fee, legal fee, or valuation cost before approving the transfer. If your outstanding loan amount is small or you are near the end of your tenure, the savings may not justify the expense, and it is important to calculate the total cost before a transfer.

Better features, not just rates

Sometimes borrowers shift to another lender not just for lower rates but for better service. A new bank may offer flexible repayment options, top-up loans for renovations, or even lower penalties on prepayment. If your current lender's policies are restrictive, switching the home loan can give you more financial freedom.

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When you should avoid transferring

If your loan is almost halfway or more towards completion, the benefit of transferring are usually less, as by then, a larger portion of the EMI has started to go towards principal repayment. Similarly, if your credit score has dipped since you first took the loan, a new bank might not give you a better deal, making the process less rewarding.

The bottomline

A balance transfer can save you money, but it’s not always the best move, and one needs to factor in the costs and check how many years of repayment you are left with. If the savings outweigh the hassle, it’s worth switching. Otherwise, you might be better off renegotiating with your current bank for a lower rate of interest.