Should you switch your home loan now? Here’s when it really pays off

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A balance transfer is worth doing only when three things line up at the same time: the new lender gives you a genuinely lower rate, you have enough years left for that lower rate to matter, and the total switching costs are low and transparent. If any one of these is missing, you’re mostly shuffling EMIs without creating real savings.

How big should the rate cut be

Tiny trims of 10-20 basis points rarely justify the paperwork. As a simple yardstick, look for a reduction of at least 50-75 basis points versus your current effective rate. On larger outstanding balances, even a 40-50 basis-point drop can work, but only if fees are minimal and you refuse to restart the clock on tenure.

Try internal repricing first

Before you move, ask your existing lender to convert you to their current carded rate for a one-time conversion or retention fee. This is often cheaper, faster and cleaner than exiting, because your documentation, insurance and mandates remain intact—and you get most of the benefit without any of the friction.

Why tenure matters more than you think

Home-loan interest is front-loaded, so the early years are interest-heavy and the later years are principal-heavy. That is why transfers save the most in the first half of the loan, ideally somewhere in years one to seven on a 20-year mortgage. If you are already close to the finish line, even a large rate cut won’t move the needle much because there simply isn’t enough interest left to save.

Count every rupee of cost

Your true breakeven is total switch cost divided by the monthly saving. Total cost means everything, including processing or login fees, valuation and legal charges, stamp duty or MOD where applicable, administrative and documentation charges, CERSAI and franking, plus GST on all of the above. Floating-rate foreclosures with banks are usually penalty-free, fixed-rate loans may not be, and bundled insurance you don’t need can stealthily inflate the effective rate.

A quick example that shows the math

Consider an old loan of Rs 50 lakh with 16 years left at 9.40 percent versus a new offer at 8.65 percent. Keeping the same 16-year tenure, the EMI drops from roughly Rs 48,075 to about Rs 46,385, a monthly saving near Rs 1,690. If all-in switching costs are Rs 18,000, your breakeven is around 11 months. That works only if you keep the remaining tenure unchanged or shorter; if you stretch back to 20 years to make the EMI look pretty, the extra interest over time will erase most of the benefit.

Know the rate type and reset cycle

Understand what you are on now and what you are moving to. Repo-linked or other external benchmark loans pass through policy changes faster, while MCLR or base-rate structures adjust more slowly. Also check the reset frequency on the new loan—monthly or quarterly resets deliver benefits sooner than annual resets, both on the way down and on the way up.

Be careful with top-ups

Transfers are often sold with a tempting top-up for renovation or consolidation. That is fine if the top-up is priced at the same home-loan rate and you need it. If it is costlier, you could be mixing cheap and not-so-cheap debt in one package, which muddies the true saving. Price the top-up separately and only add it if it stands on its own merits.

Time the switch around your credit profile

A transfer triggers a hard bureau inquiry and a fresh underwriting look. Avoid creating noise in the 60 to 90 days around the switch: do not open multiple new lines, do not close old ones impulsively, and avoid spiking card balances. A clean, stable profile speeds approval and preserves the rate you were quoted.

Turn the checklist into a single decision

Translate the usual five-point checklist into one narrative: get your current effective rate and exact years remaining, collect every rupee of the new lender’s costs in writing, insist that the sanction matches or shortens your remaining tenure, compute a realistic breakeven in months, and only then compare that outcome with your existing lender’s internal repricing offer. If the net saving from repricing is close to the transfer, take the easy win and stay put; if the transfer clearly beats it and you will comfortably cross breakeven, make the move.

The bottom line

Balance transfers create real value early in the loan when you secure a clear rate cut, keep your tenure unchanged, and keep fees modest. If your current lender will reprice you close to the new rate, choose simplicity. If not, switch—but let the math, not the EMI optics, decide.