A balance transfer moves a home loan to another lender at a lower rate. It works only when the rate gap, the balance and the time left are all large enough.
A worked example
- ₹40 lakh left, 15 years to go
- 9.6% to 8.6%: EMI falls from about ₹42,011 to ₹39,624
- Saving: about ₹2,386 a month, about ₹4.3 lakh in total
- Example costs of ₹48,600 break even in about 21 months
- Keeping the old EMI ends the loan sooner and saves about ₹8.2 lakh
When it does not work
₹15 lakh left with 6 years to go and a 0.25% gap saves about ₹186 a month. Costs would likely exceed the saving. Honest advice here is worth more than a commission.
Ask the current lender first
Many lenders will reset a rate for a small fee with no new paperwork. If that gets close to the transfer rate, it may be the better choice. Always compare net of processing fee, legal, valuation and any stamp duty.
Foreclosure charges are nil on floating-rate loans to individuals for non-business use. Fixed-rate loans can differ, so check the foreclosure letter.
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