How to Calculate If Refinancing is Worth It | Homejourney Guide

How to Calculate If Refinancing is Worth It: A Singapore Homeowner's Guide

Refinancing your home loan can save you thousands of dollars, but only if the numbers work in your favor. The key to making an informed decision is understanding how to calculate whether refinancing is actually worth it—and this requires looking beyond just the interest rate difference. At Homejourney, we believe transparent financial guidance is essential to building trust with property owners, which is why we've created this comprehensive guide to help you assess your refinancing decision with confidence.

The simple answer: refinancing is worth it when your total savings exceed your total costs, and you plan to stay in your property long enough to break even. However, the calculation involves several moving parts that many homeowners overlook, including legal fees, valuation costs, clawback penalties, and the length of your lock-in period.

Understanding the Core Refinancing Calculation

Before diving into the numbers, it's important to understand what you're actually calculating. Refinancing means paying off your existing home loan with a new loan from a different bank, typically to secure a lower interest rate. The process involves costs that must be factored into your savings equation.

The fundamental formula is straightforward:

Net Benefit = Monthly Interest Savings × Remaining Loan Period − Total Refinancing Costs

If this number is positive, refinancing makes financial sense. If it's negative, you'll lose money by refinancing. However, calculating each component accurately requires attention to detail and understanding Singapore's specific refinancing landscape.

Step 1: Calculate Your Monthly Interest Savings

Start by determining how much you'll save each month on interest payments. This requires comparing your current interest rate with the new rate you're being offered.

Monthly Interest Savings = (Current Interest Rate − New Interest Rate) × Outstanding Loan Balance ÷ 12

For example, if you have an outstanding loan balance of S$500,000 at 3.5% and you're offered a new rate of 3.0%, your monthly savings would be:

(3.5% − 3.0%) × S$500,000 ÷ 12 = S$208.33 per month

This calculation assumes a fixed rate comparison. If you're comparing fixed versus floating rates, or SORA-based rates, the calculation becomes more complex because future rates are uncertain. The chart below shows recent interest rate trends in Singapore to help you understand the current rate environment:

When comparing SORA-based rates (such as 1M SORA + 0.98% or 3M SORA + 0.70%), you'll need to factor in current SORA levels. As of January 2026, you can track live SORA rates on Homejourney's bank rates page, which updates in real-time to help you time your refinancing decision.

Step 2: Identify All Refinancing Costs

This is where many homeowners make mistakes. Refinancing involves several costs that must be deducted from your interest savings. These include:

Legal Fees: Typically S$800–S$1,500 depending on your loan amount and the complexity of your refinancing. Some banks offer legal fee subsidies ranging from S$500–S$800, which can significantly reduce this cost.
Valuation Fee: Usually S$300–S$600. This is required by the new bank to assess your property's current value. Some banks waive this fee as part of their refinancing promotions.
Clawback Penalty (Early Redemption Penalty): If you're still within your lock-in period with your current bank, you may face a 1.5% penalty on your outstanding loan balance. For a S$500,000 loan, this equals S$7,500.
Processing Fees: Some banks charge S$200–S$500 for loan processing, though many waive this during promotional periods.
Stamp Duty: Typically S$10–S$100, depending on your loan amount. This is usually minimal.

For a typical refinancing scenario with a S$500,000 loan, your total costs might look like this:

Legal fees (after S$500 subsidy): S$500
Valuation fee: S$400
Clawback penalty (1.5%): S$7,500
Processing fee: S$0 (waived)
Total Costs: S$8,400

However, many banks now offer cash rebates that can offset these costs. According to current market data, banks typically offer:

S$2,000 cash rebate for loans above S$500,000
S$2,500 cash rebate for loans above S$1,000,000
S$2,800 cash rebate for loans above S$1,500,000

These rebates can significantly reduce your net refinancing costs. In the example above, a S$2,000 rebate would bring your net costs down to S$6,400.

Step 3: Calculate Your Break-Even Period

Now that you know your monthly savings and total costs, you can calculate how many months it will take to break even:

Break-Even Period (months) = Total Refinancing Costs ÷ Monthly Interest Savings

Using our previous example:

S$6,400 (net costs after rebate) ÷ S$208.33 (monthly savings) = 30.7 months (approximately 2.6 years)

This means you'll recover your refinancing costs in about 2.6 years. If you plan to stay in your property for at least 3–5 years, refinancing makes financial sense. If you're planning to sell or refinance again within 2–3 years, the math may not work in your favor.

Step 4: Factor in Your Lock-In Period

This is a critical consideration that many homeowners overlook. Your current loan likely has a lock-in period (typically 2–3 years) during which you'll face an early redemption penalty if you refinance. However, if you're approaching the end of your lock-in period, the clawback penalty may be reduced or waived entirely.

For example:

If you're within the first year of your lock-in period, the full 1.5% penalty applies
Some banks reduce the penalty to 0.75% in the second year
After the lock-in period expires, there's typically no penalty (though some banks still charge a small fee)

If you're near the end of your lock-in period, it may be worth waiting a few months to avoid the penalty entirely. This can save you thousands of dollars and significantly improve your refinancing decision.

Step 5: Compare Multiple Bank Offers

The interest rate difference is crucial to your calculation, but rates vary significantly between banks. Rather than visiting multiple bank branches, Homejourney allows you to compare refinancing rates from DBS, OCBC, UOB, HSBC, Standard Chartered, Maybank, and other major lenders in one place.

On Homejourney's bank rates page, you can:

View current refinancing rates from all major banks
See cash rebate amounts and legal fee subsidies
Calculate your potential savings instantly
Submit one application to multiple banks simultaneously via Singpass

By comparing offers, you might discover that a 0.3% rate difference between banks translates to S$125+ in monthly savings—which could reduce your break-even period from 2.6 years to under 2 years.