Hidden Costs of Refinancing: What You Must Calculate Before Switching Banks

Understanding the True Cost of Refinancing Your Home Loan

Refinancing your home loan can save you thousands of dollars, but only if you calculate the hidden costs correctly. Many Singapore homeowners focus solely on the interest rate difference and miss critical expenses that can completely change whether refinancing is worth it. At Homejourney, we believe in transparent financial planning—which is why we've created this guide to help you understand every cost involved and determine your true break-even point.

The key question isn't "Can I save money?" but rather "Will my savings exceed my costs?" This requires careful calculation of both obvious and hidden expenses that most homeowners overlook.

The Two Main Refinancing Costs You Must Know

When you refinance your home loan in Singapore, there are typically only two direct costs involved: legal fees and valuation fees. However, these are just the beginning of your financial analysis.[1][2]

Legal fees: Payable directly to the law firm handling your refinancing. Typically range from S$1,500 to S$3,000, though many banks now offer full subsidies if your remaining loan meets their threshold.
Valuation fees: Payable to the bank's appointed valuer to assess your property's current market value. Usually between S$300 and S$500, often partially or fully subsidized by the new bank.

The good news? For most homeowners in Singapore, these costs are minimal or completely covered. Banks typically provide full legal subsidies if your remaining loan is S$300,000 and above for HDB properties, or S$400,000 and above for private properties.[1][2] Some banks even subsidize part of the valuation fee as part of their refinancing promotions.

The Hidden Costs That Can Derail Your Savings

Beyond legal and valuation fees, several hidden costs can significantly impact whether refinancing is actually worthwhile. These are the expenses that catch many homeowners off guard.

1. Lock-In Period Penalties

This is the most significant hidden cost many homeowners face. If your current home loan has a lock-in clause and you refinance before the period ends, you'll face an early redemption fee of approximately 1.5% of your remaining loan amount.[1][2] For a S$400,000 loan, this penalty alone could be S$6,000—instantly wiping out years of interest savings.

Example: If you have a S$400,000 remaining loan and refinance during the lock-in period, you'll pay S$6,000 in penalties plus the standard refinancing costs. Your total costs could exceed S$8,000 to S$9,000 before you save a single dollar.

Before refinancing, always check your loan documents for the lock-in period end date. Often, it's worth waiting a few months rather than paying this substantial penalty.

2. Clawback Penalties on Bank Subsidies

When banks offer cash subsidies or rebates for refinancing (which can range from S$500 to S$3,000), they typically include a 3-year clawback period.[2] This means if you sell your property, refinance again, or pay off the loan within 3 years, you must repay the entire subsidy amount—with no proration.

This is a critical hidden cost that's often buried in the fine print. If you received a S$2,000 cash rebate and need to sell your property after 18 months, you'll owe back the full S$2,000 immediately.

3. Bank Loan Spread (Interest Rate Margin)

Not all banks offer the same interest rate, even when they're quoting the same SORA benchmark. The bank spread—the margin banks add above SORA—typically ranges from 0.50% to 0.75% in early 2026.[9] Some promotional packages tighten this spread, but this variation means you could pay significantly different rates across banks.

A 0.25% difference on a S$400,000 loan equals approximately S$1,000 per year in additional interest costs. Always compare the full interest rate (SORA + spread), not just the promotional headline rate.

4. Opportunity Cost of Time and Effort

Refinancing requires significant paperwork, property valuation appointments, and coordination with multiple parties. While not a direct financial cost, this time investment should factor into your decision, especially if your projected savings are modest (under S$5,000 total).

Refinancing vs. Repricing: Which Hidden Costs Are Lower?

Before calculating refinancing costs, consider whether repricing might be a better option. Repricing means switching to a different loan package within your current bank—avoiding the need to change banks entirely.[1][3]

Cost comparison for HDB flats:[3]

Refinancing: S$3,000+ in legal and valuation fees (often subsidized), but access to competitive rates from multiple banks
Repricing: Only S$800 in conversion/administrative fees, sometimes free, but limited to your current bank's packages

The hidden cost of repricing? You're locked into your current bank's offerings, which may not be competitive. However, if your current bank offers a free repricing option with a competitive rate, the S$2,200+ savings in fees could outweigh the benefits of refinancing to a different bank.

Always ask your current bank about free repricing options before committing to a full refinance. Many banks offer this to retain customers.

How to Calculate Your Break-Even Point

The break-even point is the crucial number that determines whether refinancing is worth it. This is where most homeowners make mistakes in their calculations.

Step 1: Calculate Your Monthly Savings

Start by determining your monthly interest savings from the lower rate.

Formula: (Current interest rate – New interest rate) × Remaining loan balance ÷ 12 months

Example: You have a S$350,000 remaining loan at 3.5% with your current bank. A new bank offers 2.8% (a 0.7% reduction).

Monthly savings = (0.035 – 0.028) × S$350,000 ÷ 12 = S$204 per month

Step 2: Add Up All Your Refinancing Costs

Be comprehensive here. Include:

Legal fees (after accounting for bank subsidies)
Valuation fees (after accounting for bank subsidies)
Lock-in penalties (if applicable)
Any administrative or processing fees
Stamp duty on the new mortgage document (typically S$10-S$100, depending on loan amount)

In our example: S$0 (full subsidy) + S$0 (full subsidy) + S$0 (no lock-in) = S$0 total costs

Step 3: Calculate Your Break-Even Timeline

Formula: Total refinancing costs ÷ Monthly savings = Months to break even

In our example: S$0 ÷ S$204 = 0 months (immediate savings with no costs)

However, if you had S$2,000 in unsubsidized costs: S$2,000 ÷ S$204 = 9.8 months to break even

Step 4: Consider Your Time Horizon

This is critical: You must plan to stay in your property long enough to recoup your refinancing costs. If your break-even point is 10 months but you're planning to sell in 2 years, you'll still profit. But if you're planning to sell in 6 months, refinancing makes no financial sense.

Factor in the clawback period too. If you refinanced with a 3-year clawback and plan to sell in 2 years, you'll owe back the subsidy, potentially eliminating your savings entirely.

Real-World Example: Complete Break-Even Analysis

Let's work through a comprehensive example to show how all these costs interact:

Your situation:

Remaining loan: S$380,000
Current rate: 3.4% (with current bank)
New rate offered: 2.75% (from refinancing bank)
Remaining loan tenure: 20 years
Lock-in period: Ends in 8 months
Plan to stay: 5 years

Monthly savings: (0.034 – 0.0275) × S$380,000 ÷ 12 = S$164 per month

Refinancing costs:

Legal fees: S$0 (bank offers full subsidy for loans above S$300,000)
Valuation fees: S$0 (bank subsidizes)
Lock-in penalty: S$0 (waiting 8 months until lock-in ends)
Total costs: S$0

Break-even timeline: 0 months (you save money immediately)

5-year savings: S$164 × 60 months = S$9,840 (minus any clawback if applicable)

Verdict: Refinancing is clearly worth it in this scenario, especially since you waited for the lock-in period to end.

When Refinancing Is NOT Worth It

Understanding when to skip refinancing is just as important as knowing when to proceed.

Don't refinance if:

Your break-even point exceeds your planned time in the property
You're in a lock-in period and the penalty exceeds 2 years of projected savings
Your remaining loan is below S$250,000 (HDB) or S$400,000 (private property)—you won't qualify for fee subsidies
Your current bank offers a competitive free repricing option
Interest rates are expected to rise significantly (you may want to lock in a fixed rate instead)
You're planning to sell within the 3-year clawback period

How Homejourney Simplifies Your Refinancing Decision

At Homejourney, we understand that refinancing decisions involve complex calculations and hidden costs. That's why we've built tools and resources to help you make confident, informed choices.

Compare rates from all major banks in one place: Instead of visiting DBS, OCBC, UOB, HSBC, Standard Chartered, and other banks individually, you can compare their current refinancing rates on Homejourney's bank rates page. This transparency helps you identify which banks are offering the best spreads and promotional packages.

Use our refinancing calculator: Our break-even calculator automatically computes your monthly savings, accounts for different fee structures, and shows you exactly how long until you recoup your costs. You can adjust variables like lock-in periods and clawback scenarios to see different outcomes.

Submit one application to multiple banks: Rather than filling out separate applications at each bank, submit once through Homejourney and let banks compete for your business. You'll receive multiple offers, allowing you to compare not just rates but also the subsidies and terms each bank offers.

Apply via Singpass for faster processing: Use your Singpass credentials to auto-fill your application in seconds. This speeds up verification and gets you offers faster, so you can make your refinancing decision quickly while rates remain favorable.

Track real-time SORA rates: SORA (Singapore Overnight Rate Average) is the benchmark for most home loans in Singapore. By monitoring live SORA trends on Homejourney, you can time your refinancing when rates are most favorable. Our platform shows you 3-month and 6-month SORA movements to help you understand rate direction.

The chart below shows recent SORA trends to help you understand how rates have moved:

As you can see from the chart above, rates have fluctuated throughout early 2026. Understanding these trends helps you decide whether to refinance now or wait for potentially more favorable conditions.