Balance transfer offers are usually presented as a rate comparison: you are paying this, you could be paying that, look at the difference. The rate is real, but it is only one side of the calculation, and the side that gets left out is what decides whether switching is actually worth doing.
What you pay to switch
- Handling or foreclosure charges from your current lender, where applicable
- A fresh processing fee from the incoming lender
- Legal verification and technical valuation of the property, again
- Stamp duty and registration on the new loan documents, which varies by state
- Incidental costs such as document retrieval and courier between lenders
None of these are usually large on their own. Together they are meaningful, and they are paid up front while the saving accrues slowly over the remaining years.
Why the remaining tenure decides it
A home loan instalment stays the same each month, but what it is made of does not. In the early years most of it is interest, because interest is charged on a large outstanding balance. As the balance falls, more of each instalment goes to principal.
That is why the same rate reduction saves a great deal in year three and very little in year eighteen. By then there is not much interest left to save, but the switching costs are broadly unchanged.
Questions worth asking before you commit
- What is my exact outstanding balance and how many instalments remain?
- What will the outgoing lender charge to close the loan?
- What is the total of all incoming charges, in writing?
- Is the new rate fixed or floating, and what is it benchmarked to?
- Will my instalment stay the same and the tenure shorten, or the reverse?
- If I want a top-up as well, how is it assessed?
That last question matters more than it looks. A transfer and a top-up assessed together often produce a different answer from the two treated separately.
Running the numbers
Our EMI calculator will show you what the instalment and total interest look like on your outstanding balance under a different rate and tenure. Compare that against your current loan, then subtract the switching costs. If what remains is not comfortably positive, the switch is not worth the paperwork.