Should You Move Your Home Loan to Another Bank? When a Balance Transfer Pays Off
A rate gap of about 0.35% to 0.5%, a large outstanding balance and 10+ years left usually make a transfer worthwhile. The costs to subtract and the steps to compare.
Owners who took loans years ago are often paying more than new borrowers at the same bank. Moving the loan, a balance transfer, can save real money. It can also cost more than it saves.
When it usually makes sense
- A rate gap of roughly 0.35% to 0.5% or more.
- 10 or more years left on the loan.
- A large outstanding balance.
In the last three to five years of a loan, most interest is already paid, so savings are small.
A lower rate is only a saving after you subtract every cost of getting it.
Costs to subtract
- Processing fee, often 0.25% to 1% of the balance, plus GST.
- Legal, technical and documentation charges.
- Stamp duty on the new mortgage documents.
- Any charges from the old lender. Floating-rate home loans should carry no prepayment fee. See the RBI rule.
How to compare
- Note your balance, rate, EMI and remaining tenure.
- Get the new lender's rate, and check what it resets to after any teaser period.
- Calculate total interest both ways for the same tenure.
- Subtract all transfer costs.
- Ask your current bank to match the rate first. Many will.
Releasing the original property documents from the old lender typically takes one to two weeks. Keep the society informed if the mortgage noting changes.
Frequently asked questions
When is a home loan balance transfer worth it?
Usually when the rate gap is about 0.35% to 0.5% or more, the outstanding balance is large and 10 or more years remain, after subtracting all transfer costs.
What costs come with a balance transfer?
Processing fees, legal and technical charges, stamp duty on the new mortgage documents and any charges from the existing lender.
Sources
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