When does refinancing pay off?
If a new lender offers you a lower rate, the switching fees take time to recover. This calculator shows exactly how many months until the new lower rate offsets all the costs of moving. For a full yes/no verdict with itemized Indian switching costs and a top-up option, try the balance transfer calculator.
The refinance math
The principle: the new lower rate saves you some amount every month. Switching costs are a one-time charge. Breakeven is when monthly savings × months = switching costs.
Example: ₹50 lakh outstanding at 9.5% with 15 years remaining → EMI ₹52,212. Same loan at 8.5% → EMI ₹49,237. Monthly saving ₹2,975. If switching costs are ₹50,000, breakeven = 50,000 ÷ 2,975 ≈ 17 months.
After 17 months, every month you keep the loan saves you ₹2,975. Over the remaining 13 years (156 months), total saving is roughly ₹4.1 lakh.
When refinance makes sense
- Rate difference of 0.5% or more. Below 0.5%, the switching costs usually dominate.
- Remaining tenure of 5+ years. Short remaining tenure means too few months to recover costs.
- Breakeven within 24-36 months. Longer breakeven periods mean you're betting that you won't pay off the loan early.
- Your current lender refuses to match. Always ask your current bank to match the competitor's rate before switching. Sometimes they will.
What switching costs typically include
- Processing fee at new lender: 0.25-1% of loan amount
- Legal verification charges: ₹3,000-10,000
- Valuation fee (for property): ₹3,000-7,000
- Stamp duty on the new loan agreement: 0.1-0.5% of loan amount, varies by state
- Documentation charges: ₹500-3,000
- Foreclosure charges at the old lender: zero for floating-rate retail loans (RBI rule); 2-5% for fixed-rate or business loans
For a ₹50 lakh home loan, the typical total is ₹40,000-75,000.
What this calculator doesn't consider
- Tax shield impact: if the new lender's lower rate means you pay less interest, your Section 24(b) deduction is also smaller. Net savings (after tax) are typically 70-80% of the gross savings shown here for borrowers in the 30% slab.
- Top-up loan opportunity: some refinances let you also take a top-up at the new rate. This could change the calculation favorably.
- Future rate cuts: if RBI is expected to cut rates further, the math may favor waiting.