Should I transfer my home loan to ICICI Bank at a lower interest rate?

I am 54 yrs and took 37 lakhs home loan from SBI jointly with my wife who is 49 yrs for the period of 25 in 2022 and the monthly EMI comes to 33500/- and we have a balance of 35 lakhs approximately. The ROI at the start of loan was 7.15% which is now 9.65%. Recently I have an offer from my ICICI bank account branch for the balance transfer of the loan with the interest rate of 8.5%. Shall I opt for the same without any consideration or look for other hidden things if any?

Ans: Transferring could lead to substantial savings, but confirming these aspects will help you ensure no hidden costs reduce the benefit. You need to consider Processing Fees & Charges: prepayment Charges, Loan Terms, Legal & Documentation Costs, and Future Rate Revisions. If everything checks out, it could be a financially sound decision to make the switch.
Nitin Narkhede
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Ans: You are holding a home loan of Rs. 48 lakhs with Tata Capital.
The current rate is 8.85% (floating), and 104 EMIs are remaining.

You also have an offer from a government bank at 8.25% interest.
You are thinking of switching.

Also, you are keen to close the loan early using extra EMI or step-up method.
This is a great sign of financial discipline.

Let us evaluate everything carefully.

First, Review Your Current Home Loan Setup
Tata Capital charges 8.85% floating rate.

They don’t follow RBI repo rate directly.

That means your rate may not reduce quickly when RBI cuts repo rate.
Private NBFCs often link to internal benchmarks.

That gives them more control, less transparency.
This could lead to higher cost over time.

Second, Compare with Government Bank Offer
You are getting 8.25% from a government bank.

Most likely, it is linked to RBI repo rate.

That gives more transparency and faster rate reduction during cuts.
Also, public banks may give better customer support long term.

Lower rate and better structure both are positive.

Third, Cost of Switching Must Be Considered
Switching a home loan is not free.

There may be processing charges, legal, and valuation costs.

Sometimes the cost is Rs. 10,000 to Rs. 25,000.
This cost must be compared to interest saved.

If interest saving is big, switch is worth it.
If not, better to stay.

Fourth, Check the Remaining Loan Tenure
You have 104 EMIs left. That is around 8.5 years.

At this stage, interest portion is still high.

So switching now can still help.
If you were near the end of tenure, switching may not save much.

But you are in mid-to-late phase. It can still be useful.

Fifth, Repayment Strategy – Step-Up or Extra EMI
You want to close early using extra payments.

That’s a very powerful approach.

You can follow two smart strategies:

Step-Up EMI every year when your salary increases

Or pay one extra EMI every year

Even one extra EMI yearly will reduce the total EMIs by 5 to 6.
If you do this consistently, you can close loan at least 1 to 1.5 years early.

If you combine both methods, it becomes very powerful.

Sixth, Benefits of One Extra EMI Every Year
Loan tenure gets shorter.

You save a lot of interest.

Extra EMI reduces principal directly.
So next month’s interest becomes lesser.

This cycle keeps repeating.
So total interest goes down every year.

Seventh, Lump Sum Repayments are Also a Strong Option
Got bonus, incentives, or profits? Don’t spend fully.

Use part of it to repay principal.

Even Rs. 1 lakh lump sum once a year can reduce many EMIs.
You don’t need to wait for end of year.

Whenever cash is available, pay part pre-payment.
It saves interest from that month itself.

Eighth, Plan Your Repayment Calendar
Mark dates in calendar for extra payments.

Plan them with yearly increments or festival bonuses.

This gives clarity and target.
Don’t leave it to random mood or emotion.

Being organised gives confidence and results.

Ninth, Should You Switch Lender or Not?
Let us assess the switch properly:

You should switch if…

New lender is offering repo-linked rate (like EBLR)

Their service is reliable and terms are clear

The cost of switching is below Rs. 25,000

You will continue for at least 5 more years in loan

You can continue with Tata Capital if…

They are ready to match new rate (ask them first)

Your relationship and process is smooth there

Switch cost is high and savings are low

But if Tata is not reducing rate automatically,
and they don’t pass on rate cuts,
you are better off moving to a government bank.

Tenth, What to Watch While Switching
Don’t go for the lowest rate only. Check terms.

Some lenders increase rate quietly over time.

Ensure your new loan is linked to repo rate.
Not internal or fixed benchmark.

Ask for written confirmation.

Eleventh, Use a Certified Financial Planner for Help
A Certified Financial Planner will guide you smartly.

They assess switching cost, benefit, and fit for you.

They also help in calculating step-up EMI plans.
That saves time and gives clarity.

Twelfth, Avoid These Mistakes While Repaying Early
Don’t use emergency fund to prepay home loan.

Don’t break retirement investments to close loan.

Home loan is a long-term debt.
Closing early is good. But not at any cost.

Your future safety is more important than loan closure.

Thirteenth, Tax Benefit Angle
Home loan gives tax deduction under Section 80C and 24(b).

These reduce your tax outgo.

So don’t rush to close loan just for peace of mind.
Balance tax benefits with interest savings.

If your tax benefits are low, prepayment is more attractive.

Fourteenth, How Much Extra EMI You Can Afford
Start with one extra EMI per year.

If you get salary hike, increase EMI voluntarily.

Even 5% increase in EMI yearly helps a lot.
Don’t wait till you “feel rich”. Start small.

Let compounding of interest savings work for you.

Final Insights
You are already thinking in the right direction.
That is your biggest strength.

Tata Capital loan at 8.85% is slightly high.
If a government bank is giving 8.25% with repo-link, it is better.

But check the switching cost.
Also speak to Tata Capital once.

Ask them if they can reduce the rate.
If not, prepare to switch carefully.

Start one extra EMI per year.
Do part prepayment when bonus or gift money comes.

Plan a step-up increase in EMI every year with salary hike.
Keep emergency fund and retirement fund untouched.

You are on the path to a debt-free life.
With this focus, your goal is very much possible.

Get support from a Certified Financial Planner for exact steps.
You don’t have to do it alone.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment