Refinancing vs. Home Loan Balance Transfer: What’s the difference?

Refinancing vs Home Loan Balance Transfer: What's the Difference?

Obtaining a house loan is a substantial financial commitment, so it’s natural for borrowers to look for methods to get suitable conditions on their loans as they progress. Home loan balance transfers and refinancing are two well-liked methods for accomplishing this.

The method by which a borrower switches their existing home loan from one lender to the next is named a home loan balance transfer. Refinancing a home loan refers to modifying the conditions and terms of an existing loan with the same lender.

While there may be advantages to each, it’s important to learn the distinctions and decide which choice best matches your financial objectives. We’ll examine the ideas of home loan balance transfers and refinancing, consider the benefits and drawbacks, and assist you in making an informed choice in this in-depth guide.

What is a Home Loan Balance Transfer?

A home loan balance transfer is the procedure by which a borrower moves their current house loan from one lender to another. It is sometimes referred to as a loan takeover or transfer.

Taking advantage of the new lender’s cheaper interest rates is the main motivation for doing this. Transferring the balance of their home loan might enable borrowers to lower their monthly mortgage payments and shorten the loan term.

The number of new loan commitments for first-time homebuyers decreased by 0.8% in June compared to the same month last year and by 12.2% overall.

This is how does home loan balance transfer works-

  • The borrower finds a new lender who will give them a house loan with a reduced interest rate.
  • The new lender settles the original lender’s outstanding loan balance.
  • The borrower is currently making EMI payments to the new lender for a new house loan with a reduced interest rate.

Advantages of Transferring a Home Loan Balances

Here we have listed some of the advantages of a home loan balance transfer:

  • Lower Interest Rates: Since a lower interest rate can significantly reduce the total amount of interest paid across the duration of the loan, securing one is often the main cause of a balance transfer.
  • Potential Savings: Reduced Equated Monthly Installments (EMIs) result from lower interest rates, which give borrowers the opportunity to save money and have better cash flow.
  • Modification of EMI Structure: In order to learn if a balance transfer is a good idea for a home loan, it is better to fit their financial circumstances; borrowers might also take advantage of this chance to modify the EMI structure or loan tenure.

Things to Think About Before Choosing a Balance Transfer

  • Costs Associated: While a balance transfer may result in long-term savings, there may be processing fees, legal fees, and documentation costs. Make sure the savings offset these expenses. One should think about how to reduce home loan EMI with balance transfer.
  • Credit Score: Having a high credit score is usually necessary for a balance transfer. Applying for several loans or transferring balances in a short amount of time may temporarily lower your credit score.

What is home loan refinancing?

Changing the terms and circumstances of an existing loan with the same lender is called refinancing a house loan. Securing improved conditions is the aim, frequently through interest rate reduction, loan tenure extensions, or EMI structure modifications.

This is how it operates:

  • A borrower approaches their present lender to bargain for improved loan conditions.
  • The lender might consent to change other loan terms or to reduce the interest rate.
  • The borrower keeps making payments to the same lender and updates their current loan to reflect the new terms.

What are the benefits of refinancing?

  • Simplified Process: As the borrower keeps the current relationship, refinancing with the same lender entails less formalities than a balance transfer.
  • Lower Interest Rates: Refinancing may result in lower interest rates, which could save money. It is comparable to a balance transfer.
  • No Lender Change: Some borrowers would rather keep their present lender for convenience’s sake while still taking advantage of better loan conditions.

Things to take into Account Before Refinancing

  1. Negotiation Skills

Good communication and bargaining skills are necessary to work for a better loan arrangement with your existing lender.

  1. Limited Options 

If you refinance, you might not be able to take advantage of offers from other institutions because it limits you to your existing lender.

Comparing Refinancing and Balance Transfer for Home Loans

Basis of differenceBalance Transfer for Home LoansRefinancing
Interest RatesThe main goal in both situations is to obtain a reduced interest rate. Transferring your home loan balance to a new lender who is giving a lower rate is the process.In order to obtain a cheaper interest rate on the Home Loan Balance Transfer, refinancing involves renegotiating the terms with the present lender.
Expenses AssociatedA home loan balance transfer option frequently has additional costs, such as processing fees, legal fees, and documentation costs.Refinancing might only cost a small amount, mostly in the form of administrative or documentation fees.
Qualification StandardsApplying for a new loan from a different lender is required for a home loan balance transfer. As a result, the new lender’s qualifying requirements must be satisfied.Refinancing usually entails modifying the terms with your current lender. Thus, it usually doesn’t require a new application or eligibility evaluation.
Impact on Credit ScoreAny choice may impact your credit score. A hard query about a balance transfer could appear on your credit record and temporarily reduce your score.Since there aren’t many queries involved, refinancing with your present lender is less likely to hurt your credit score.
Note: This is just a list of the biggest differences. The reader is advised to get more details from their local representative/manager.

Choosing the Right Option

  1. Select Home Loan Balance Transfer If:
  1. You’ve located a lender with noticeably cheaper interest rates, and the possible savings exceed the associated expenses.
  1. You feel at ease with the new lender’s qualifying requirements and documentation process.
  1. You are open to changing lenders and starting a fresh bank account.
  1. Choose Refinancing If:
  1. Since you think your present lender will provide better conditions, you would prefer to keep your relationship with them.
  1. You want an expedited procedure with the fewest possible eligibility and paperwork requirements.
  1. It appears possible to work out better terms with your current lender.


Refinancing and house Loan Balance Transfer are two effective ways to lower the cost of your house loan and strengthen your financial situation. Your comfort level with the documentation procedure, the interest rate difference, and the readiness of your present lender to negotiate are some of the elements that will determine which of them you should choose.

It’s wise to speak with house loan specialists or financial consultants before choosing because they can evaluate your unique circumstances and point you in the direction of the solution that will best support your financial objectives.

The ultimate objective is the same whether you decide to renegotiate conditions with your existing lender or transfer your home loan to a new lender- to make homeownership more financially advantageous and affordable over time.


Why would one think about transferring the amount of the house loan or refinancing?

Most people think about these choices to save money. You could be able to switch loan types or receive a reduced interest rate by refinancing. You could move your balance to a different lender that offers more favorable conditions or cheaper interest rates.

When choosing between a balance transfer and refinancing, what factors should I take into account?

Consider your objectives. Refinancing is a preferable option if you want to make modifications to your loan, like moving from a fixed to an adjustable rate. A balance transfer can be more appropriate if all you’re looking for are better terms or cheaper rates.

Which is simpler to use and faster?

Home loan balance transfers are frequently easier and faster than refinancing. Due to the simplified procedure, you can quickly benefit from improved terms.

Table of Contents

Join Our Newsletter

Open chat
Hello 👋
Can we help you?