Start with a like-for-like comparison
The starting example uses ₹30 lakh outstanding, 120 months remaining, a current rate of 9% and a proposed rate of 8%. With ₹30,000 of upfront switching costs, the estimated lifetime saving is ₹1,62,534. These are illustrative inputs. Change the new tenure separately to see whether a lower EMI also means a lower total cost.
What the recovery month means
At any month, we compare payments already made plus the balance still owed under each loan, then subtract the switching fee. Because both start with the same principal, this equals cumulative interest saved minus fees. The recovery month is shown only if that saving remains nonnegative through the end of both loans. A longer new term can create an early advantage that later disappears.
This is an undiscounted interest-cost comparison, not cash-payback from EMI reductions or a recommendation to transfer. If you plan to sell, prepay or close early, obtain dated settlement figures and compare that shorter horizon separately.
Check the written offer
Use the new lender’s written rate, repayment schedule and itemised charges. Ask about benchmark resets and any current-lender repricing option. Both loans here use monthly reducing-balance interest at a constant rate, with no top-up borrowing, rate resets, financed fees, tax benefits or future prepayments. Actual daily interest and settlement timing can change the result.
RBI: Key Facts Statement for Loans & Advances · Read the balance-transfer checklist
Common questions
Does a lower EMI mean I save money?
Not necessarily. Extending the term can lower EMI while increasing total interest. Compare the same remaining term first, then change the proposed term and inspect total costs.
Should I include interest already paid?
No. Compare today’s outstanding principal and future payments. Past interest is already paid and is the same under both choices.
What belongs in switching costs?
Include all additional written costs of closing the existing loan and setting up the new one: applicable processing, legal, valuation, documentation, taxes and other charges. Deduct only confirmed credits. Do not assume closure charges are zero.
How is cost recovery calculated?
It is the month when cumulative interest saved covers the upfront switching costs and stays nonnegative through both payoff schedules. It is not the time to recover the fee from EMI cash savings alone.
Can the fees be added to the new loan?
This comparison assumes fees are paid upfront from your cash. Financed fees increase the principal and interest; that scenario is not included here.
What if rates change or I close the loan early?
Both rates stay constant and payments occur monthly in this model. Rate resets, prepayments, early closure, insurance and tax benefits are excluded. Check scenarios against your actual loan terms.
Home loan EMI calculator · Prepayment calculator · Compare an overdraft home loan