Is the switch worth it? A worked example
An illustrative case, not a quote: a ₹12 crore LAP outstanding with 10 years left, moving from 10.00% to 9.50%.
- EMI at 10.00%: about ₹15.86 lakh a month
- EMI at 9.50%: about ₹15.53 lakh a month
- Saving: about ₹33,000 a month, about ₹3.96 lakh in year one and about ₹39.6 lakh over the full tenure (undiscounted)
Now set the cost against that. Assume a processing fee of 0.25% (₹3 lakh), about ₹1 lakh for legal and valuation, and the capped MODT (stamp duty plus registration; confirm the current caps with the Sub-Registrar). Break-even then comes in a little over a year. Assumptions like these move a lot between lenders, so ask each one for a written fee schedule and redo the sum with real numbers. If break-even is more than about a third of the remaining tenure, the switch is usually not worth the effort and risk.
Compare more than the headline rate:
- Benchmark and reset. Moving from an MCLR (a bank lending rate)-linked loan to a repo-linked (EBLR) one changes how fast rate cuts and hikes reach you.
- Spread lock. Check whether the spread is fixed for the tenure or can be revised on review.
- Structure. An OD or dropline LAP lets surplus cash cut interest. A plain term loan does not.
- Part-prepayment terms on the new loan, in writing.
Foreclosure charges: what the RBI rule does and does not cover
RBI’s Pre-payment Charges on Loans Directions, 2025 (issued 2 July 2025): For floating-rate loans sanctioned or renewed on or after 1 January 2026: no pre-payment charges on non-business loans to individuals; for business loans to individuals and micro and small enterprises (MSEs), no charges by commercial banks (other than small finance, regional rural and local area banks), Tier 4 UCBs, NBFC-UL and AIFIs; small finance banks, RRBs, Tier 3 UCBs, state/central co-operative banks and NBFC-ML are barred only up to a ₹50 lakh sanctioned amount. Medium and larger enterprises, fixed-rate loans and older loans follow the lender's policy and the loan agreement.
What this means in practice for a ₹5 crore+ borrower:
- Check who the borrower is. An individual or a micro or small enterprise is covered. A medium or larger company is not.
- Check when the loan was sanctioned or last renewed. Loans from before 1 January 2026 follow the terms in force when they were sanctioned.
- Check the lender category. The ₹50 lakh threshold for small finance banks and NBFC-ML means a large loan from them can still carry a charge.
- Check the rate type. Fixed-rate and dual-rate loans depend on whether the loan is floating when you prepay.
- For CC/OD limits secured on property, no charge applies if you tell the lender, within the period in your agreement, that you will not renew, and the limit closes on its due date.
Charges must be disclosed in the sanction letter, the loan agreement and, where it applies, the Key Facts Statement. A charge not disclosed there cannot be added later.
Rent-loan (LRD) takeovers have extra moving parts
A lease rental discounting loan is serviced from rent, so a takeover changes the rent flow, not just the lender:
- Tenant letter. The tenant must sign a fresh letter (often three-way) to pay rent into the new lender’s escrow account. Corporate tenants can take weeks to sign.
- Remaining lock-in. The new lender sizes the loan on the rent still to come. A lease close to renewal shrinks the eligible amount, even if the old loan was sized when the lease was fresh.
- Escalations and vacancy. Escalations in the lease help. Any vacancy, rent dispute or delayed payment in the bank statements hurts.
- Top-up on LRD works only if the present value of the remaining rent supports a larger loan after the new lender’s margin.
How the takeover runs
- Break-even and lender shortlist on your actual quotes, with the benchmark, spread, reset and prepayment terms compared side by side.
- Sanction from the new lender, with the top-up sanctioned in the same letter if you need one. That way you register one MODT and go through one legal and valuation round.
- Foreclosure letter and LOD from the existing lender: the outstanding amount, per-day interest and the list of original documents it holds.
- Disbursal straight to the old lender, collection of the original title deeds, and a new MODT with the new lender. For a company, the old charge is satisfied and the new one created with the ROC.
- Top-up disbursal after the takeover is complete, against the stated end-use.
A caution before you switch
A clean-looking file is not always a good switch. We also check whether the property will stay easy to reach and easy to sell, because the new bank will. Approval, rate and amount are always the lender’s decision.
Who reviews your case
CA Jitendraa Rathi. He has 20 years of experience with loans, including at two banks. You may pay us a fee. We tell you the amount in writing before we start.
Sources (checked 28 October 2026)
- Reserve Bank of India, Key Facts Statement for Loans & Advances: RBI KFS (checked 28 Oct 2026).
- Compare any balance-transfer offer on the full Key Facts Statement. The new lender decides.
Written and reviewed by CA Jitendraa Rathi, Chartered Accountant (CA membership number 217936) · Ex-banker, 20 years of experience in credit and lending · LinkedInLast reviewed · Expert review: CA Jitendraa Rathi (ICAI 217936)