Home loan balance transfer: Higher residual principal tenure drive savings

A high credit score is critical as it enables the borrower to secure the new loan at an attractive rate

The Reserve Bank of India cut the repo rate by 25 basis points on December 5. The cumulative rate cut of 125 basis points in 2025 has brought the repo rate down to 5.25 per cent. Queries for home loan balance transfer (HLBT) have spiked after the latest cut.

 

Conducive environment

 

Lower interest rates typically benefit new borrowers faster than existing ones. “Many existing borrowers are still waiting for a full transfer of benefits from their lenders,” says Atul Monga, chief executive officer (CEO) and co-founder, BASIC Home Loan. 

Balance transfer becomes attractive when rates are competitive and trending lower. “Interest rate reductions make lenders’ pricing, processing fees, and service quality more competitive,” says Pramod Kathuria, founder and CEO, Easiloan.

 

Long residual tenure, high credit score help

 

Many borrowers whose loans are linked to older or internal benchmarks are stuck at higher home loan rates than the best rates they can get today. “Borrowers who took out a loan during a high-interest-rate period and whose existing lender is slow to pass on the benefits of rate cuts should consider a balance transfer,” says Monga.

 

Those with a long repayment tenure ahead are best placed to benefit. Borrowers should ideally have five to seven years remaining in the loan tenure. “The higher the outstanding loan principal, the greater the absolute saving possible even from small reductions in rates,” says Kathuria.

 

Credit quality is another factor. Kathuria says borrowers should have a credit score above 750. This improves their chances of securing a better rate from a new lender.

 

Calculate net savings

 

The decision to go for HLBT should be based on overall savings. “Borrowers must base this decision on total savings over the remaining loan tenure, rather than just the headline rate,” says Monga. He adds that even a 25 basis point reduction can be meaningful for long-tenure or high-interest-rate loans.

 

Kathuria advises borrowers to factor in all associated costs. “Compute net savings after accounting for processing fees, legal and valuation charges, and any foreclosure-related costs,” he says.

 

Eligibility checks, documents required

 

Lenders assess eligibility based on income and repayment capacity. “Monthly income and EMI-to-NMI (net monthly income) ratio are assessed,” says Ratan Chaudhary, head of home loans, Paisabazaar.

 

Repayment behaviour over the past 12 months is examined. “The new lender will examine whether home loan EMIs were paid on time,” says Rishi Mehra, CEO, Wishfin.

 

Credit score checks, property-related documents and know your customer (KYC) compliance are mandatory. “The lender verifies whether the property title is clear and legally transferable,” says Chaudhary. A no-objection certificate from the previous bank and builder may also have to be submitted.

 

Costs involved

 

The new lender charges a processing fee, usually between 0.5 per cent and 2 per cent of the loan amount. Borrowers on floating-rate loans are not required to pay foreclosure charges, while fixed-rate loans attract such costs. Legal and technical valuation fees may apply, along with stamp duty on fresh loan documents. “Some lenders may reduce or waive the processing fee or other charges to attract borrowers,” says Chaudhary.

 

Do’s and don’ts

 

Do not make this transition without calculating the net effective cost savings. “Use online HLBT calculators to compare potential savings from various lenders,” says Chaudhary.

 

The loan tenure should not be extended during HLBT. “Borrowers should not reset to a longer tenure as doing so leads to higher interest outgo,” says Mehra.

 

Due diligence on the new lender is essential. “Check how the new lender transmits repo rate changes by the RBI and the date of EMI deduction,” says Mehra. It should ideally be after the date on which the borrower’s salary is credited.

 

Borrowers may also negotiate with their existing lender. “Take an offer from a new lender and use it to negotiate with your existing lender,” says Mehra. While the existing lender may charge a fee for moving you to a lower rate, this will likely be lower than the cost of HLBT.

 

Key steps in balance transfer

• Verify your credit score
• Compare lenders on rate, spread, and reset clauses
• Apply with income documents, KYC, and property records
• New lender conducts valuation and legal due diligence
• Sanction letter is issued
• Existing loan is foreclosed and documents transferred
• New loan is disbursed and closure of old loan confirmed

Source: Easiloan