When Should You Switch Your Home Loan? Year-by-Year Guide

Wondering when to switch your home loan? This year-wise analysis reveals the ideal time to transfer your loan for maximum interest savings.

Many borrowers feel excited to switch their home loan whenever interest rates start falling. But switching is not as simple as choosing the bank offering the lowest rate. You must consider how long your existing loan has already run, the actual rate difference, the processing and transfer charges, and the remaining tenure. Without evaluating these factors, blindly shifting to a new lender just because the headline rate looks lower may not be a sensible or beneficial decision.

When Should You Switch Your Home Loan? Year-by-Year Guide

Switching or transferring your home loan to another bank may look like a simple interest-rate decision, but in reality, timing plays a much bigger role than most borrowers realize. Many people switch their loan too early out of fear or too late when their interest-saving potential is already gone.

This article provides a clear, practical, and fully data-backed analysis so you can confidently decide when switching actually makes financial sense — and when it does not.

You will find:

• A year-by-year savings table (Years 1 to 20)
• How much principal you repay each year
• When interest dominates, and when principal dominates
• The scientific “sweet spot” for switching your home loan
• When switching is a waste of money
• A practical decision checklist

All calculations are based on a standard EMI amortization model.

Assumptions for the analysis

To keep the example simple and relatable, we assume:

• Loan Amount: Rs.1,00,00,000 (Rs.1 crore)
• Loan Tenure: 20 years (240 months)
• Current Interest Rate: 8%
• New Rate (if switched): 7.5%
• If you switch during any year, the remaining tenure = 20 – that year

These numbers are realistic approximations and closely match actual bank EMI behaviour.

Why timing is more important than interest rate

Many borrowers think switching depends only on rate difference (0.25%, 0.50%, 1%).
But the truth is:

The earlier you switch, the more you save — even with a small rate reduction.

The later you switch, the less you save — even with a big rate reduction.

This happens due to how EMI is structured:

• In early years – EMI = mostly interest, very little principal
• In later years – EMI = mostly principal, very little interest

Hence:

• A 0.50% rate cut in year 1 saves lakhs
• A 0.50% rate cut in year 18 saves almost nothing

Understanding this simple point is the key to making a smart home loan decision.

Part 1: Year-by-Year Switching Savings

This table shows how much total savings you get if you transfer the loan at the start of each year.

Year of Switching	Outstanding Balance (Rs.)	Years Left	Estimated Savings (Rs.)
1	97,88,633	19	7,79,000
2	95,59,723	18	6,19,000
3	93,11,814	17	5,14,000
4	90,43,328	16	5,05,000
5	87,52,558	15	4,51,208
6	84,37,655	14	3,99,000
7	80,96,614	13	3,49,900
8	77,27,268	12	3,02,954
9	73,27,265	11	2,58,669
10	68,94,063	10	2,17,231
11	64,24,905	9	1,78,814
12	59,16,807	8	1,43,599
13	53,66,538	7	1,11,768
14	47,70,596	6	83,510
15	41,25,191	5	59,018
16	34,26,290	4	38,486
17	26,69,900	3	22,115
18	18,52,215	2	10,107
19	9,69,384	1	2,666
20	0	0	0

Note – You can use our FREE home loan calculator to calculate on your own, “Prepay Home Loan Calculator – Download Free Excel Sheet” and “Home Loan EMI Calculator 2025 – Download Free Excel Sheet“.

Key takeaway

The maximum switching benefit happens during:

Years 1 to 5 ? Savings between Rs.4.5 to Rs.7.8 lakh

Years 6 to 10 still provide moderate savings.
After Year 15, savings become negligible.

Part 2: How much principal do you repay every year?

You earlier asked “When do we finish 10%, 20%, 30% of principal?”
This table answers that fully:

Year	Outstanding (Rs.)	Principal Repaid (Rs.)	% of Principal Repaid
1	97,88,633	2,11,367	2.11%
2	95,59,723	4,40,277	4.40%
3	93,11,814	6,88,186	6.88%
4	90,43,328	9,56,672	9.57%
5	87,52,558	12,47,442	12.47%
6	84,37,655	15,62,345	15.62%
7	80,96,614	19,03,386	19.03%
8	77,27,268	22,72,732	22.73%
9	73,27,265	26,72,735	26.73%
10	68,94,063	31,05,937	31.06%
11	64,24,905	35,75,095	35.75%
12	59,16,807	40,83,193	40.83%
13	53,66,538	46,33,462	46.33%
14	47,70,596	52,29,404	52.29%
15	41,25,191	58,74,809	58.75%
16	34,26,290	65,73,710	65.74%
17	26,69,900	73,30,100	73.30%
18	18,52,215	81,47,785	81.48%
19	9,69,384	90,30,616	90.31%
20	0	1,00,00,000	100.00%

Principal milestones

• 10% repaid – Between Year 4 and 5
• 20% repaid – Around Year 7–8
• 30% repaid – Around Year 10
• 50% repaid – Around Year 14
• 70% repaid – Around Year 17
• 90% repaid – Around Year 19

This clearly shows why switching late hardly helps — because most interest is already paid.

When should you actually switch? (Practical rules)

Best time to switch

Years 1 to 5

• Very high outstanding balance
• EMI mostly going to interest
• Even a 0.25–0.40% reduction saves lakhs

Good time to consider switching

Years 6 to 10

Savings still around Rs.2–4 lakh.
Worthwhile if switching charges are low.

Think twice

Years 11 to 15

Savings shrink to Rs.50,000 – Rs.1.8 lakh.
Switch only if the new rate is significantly lower or switching is free/cheap.

Not advisable

Years 16 to 20

Savings are almost zero.
Most EMI is principal.
Switching is simply not worth the hassle.

Checklist before switching

1. Is your rate difference meaningful?

• Greater than or equal to 0.30% ? Good
• Greater than or equal to 0.40% ? Very good
• Greater than or equal to 0.50% ? Switch immediately (early years)

2. Are the switching costs low?

Add:

• Processing fee
• Legal & valuation
• MOD cancellation charges
• Stamp duty
• Admin charges

Compare total cost vs savings table above.

3. Will you stay with the loan long enough?

If you plan to:

• prepay in next 1–2 years
• sell the property soon

Then switching may not be useful.

4. Did you try internal conversion?

Sometimes your existing bank offers a lower rate for a small conversion fee — easier than a full transfer.

Final Summary

So, when should you switch your home loan?

• Years 1–5: Switch without hesitation – Highest savings
• Years 6–10: Still good – Moderate savings
• Years 11–15: Only if low fees or big rate cut
• Years 16–20: Don’t switch – Savings are negligible

By understanding how principal and interest behave over your loan’s life, you can make a smart, confident switching decision that saves money without unnecessary paperwork.