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Balance transfer (BT) of home loans
What it is
A borrower moving an existing home loan to another lender offering a lower rate, with the new lender paying off the old one. Home loans carry no prepayment penalty on floating rates, so switching is effectively free to the borrower
It is the defining competitive dynamic of prime mortgage lending, where the product is identical across lenders and only price differs
Impact on industries
- Structural attrition on the best part of the book - the borrowers able to refinance are the seasoned performers a lender most wants to keep, and early exits strand acquisition cost
- Caps pricing power in prime housing finance, since any attempt to hold rates above market is answered by the borrower leaving rather than negotiating
- It cuts both ways - a lender with lower funding cost uses BT to acquire proven borrowers with visible repayment records, which is cheaper than underwriting new ones
- Affordable and self-employed segments are far less exposed, since those borrowers are harder to underwrite and fewer lenders compete for them