How to Calculate If Refinancing is Worth It: A Singapore Property Owner's Guide
Refinancing your home loan can save you thousands of dollars, but only if the numbers work in your favour. The key to making an informed decision is understanding how to calculate whether refinancing will genuinely benefit your financial situation—and Homejourney is here to help you navigate this critical decision with transparency and accuracy.
Refinancing means switching your existing home loan from one bank to another to secure a lower interest rate or better loan terms. However, it comes with costs that must be factored into your break-even calculation. This guide walks you through the exact methodology to determine if refinancing makes financial sense for your property.
Understanding the Refinancing Equation
The fundamental question is simple: Will the interest savings from refinancing exceed the costs involved in switching banks? To answer this accurately, you need three key pieces of information: your current loan details, the new loan terms you're being offered, and the total costs of refinancing.
Start by gathering your current home loan information. You'll need your outstanding loan balance, current interest rate, remaining loan tenure, monthly instalment amount, and any early repayment penalties or lock-in period restrictions. This information is typically available in your loan statement or by contacting your current bank directly.
Next, identify the new loan offer you're considering. This includes the new interest rate, loan tenure (whether you're keeping it the same or extending it), and the bank's promotional offers such as cash rebates or subsidised fees. On Homejourney's Bank Rates page, you can compare refinancing rates from DBS, OCBC, UOB, HSBC, Standard Chartered, and other major banks in one place, making this comparison significantly easier.
Identifying All Refinancing Costs
Many property owners focus only on interest rate differences and miss the hidden costs that significantly impact the break-even calculation. In Singapore, refinancing typically involves two main costs: legal fees and valuation fees.
Legal fees are payable directly to the law firm handling the refinancing transaction. These typically range from S$800 to S$1,500 depending on the property type and complexity. However, most banks provide full legal subsidies if your remaining loan balance is S$300,000 or above for private property, or S$200,000 or above for HDB flats. This means you often pay nothing for legal fees.
Valuation fees are charged by the bank to assess your property's current value. These typically cost S$400 to S$800. Like legal fees, many banks subsidise or fully cover valuation fees for loans above the minimum thresholds mentioned above. Always negotiate these subsidies with your new bank—they're standard practice and non-negotiable.
If you're refinancing during a lock-in period (typically the first 1-2 years of your loan), you may face an early repayment penalty of up to 1.5% of your outstanding loan balance. This is a critical cost that many borrowers overlook. For example, if your outstanding balance is S$500,000 and you're penalised at 1.5%, you'll pay S$7,500 just to exit your current loan early.
Some banks also charge administrative or processing fees, though these are increasingly waived as part of competitive refinancing packages. Always ask your new bank for a complete fee breakdown before committing.
Calculating Your Monthly Savings
The most straightforward part of the calculation is determining your monthly interest savings. This requires comparing your current monthly instalment with your new monthly instalment under the proposed refinancing terms.
Your monthly instalment is calculated using the standard mortgage formula, but the easiest approach is to use a refinancing calculator. Homejourney's refinancing calculator allows you to input your current loan details and proposed new terms to instantly see your monthly savings. Simply enter:
- Outstanding loan balance
- Current interest rate and remaining tenure
- Proposed new interest rate and tenure
The calculator will show you the difference between your current monthly payment and your new monthly payment. This is your gross monthly saving—before accounting for refinancing costs.
For example, if your current monthly instalment is S$2,500 and refinancing reduces it to S$2,300, your monthly saving is S$200. This is the figure you'll use to calculate your break-even point.
The Break-Even Analysis: Your Critical Decision Point
The break-even point is the number of months it will take for your monthly savings to offset the total costs of refinancing. This is the most important calculation for determining if refinancing is worth it.
Break-Even Formula:
Break-Even Months = Total Refinancing Costs ÷ Monthly Savings
Let's work through a real example. Suppose you're refinancing a S$400,000 loan and the costs are:
- Legal fees: S$0 (fully subsidised)
- Valuation fee: S$0 (fully subsidised)
- Early repayment penalty: S$0 (no lock-in period)
- Total costs: S$0
Your monthly savings from the rate reduction is S$200. In this scenario, your break-even is immediate—you save money from day one. This is an excellent refinancing opportunity.
Now consider a more complex scenario with lock-in penalties:
- Legal fees: S$0 (subsidised)
- Valuation fee: S$400 (partially subsidised)
- Early repayment penalty: 1.5% of S$500,000 = S$7,500
- Total costs: S$7,900
Your monthly savings is S$250. Your break-even calculation is:
S$7,900 ÷ S$250 = 31.6 months (approximately 2.6 years)
This means you need to stay in the refinanced loan for at least 32 months to recover the costs and start benefiting financially. If you plan to sell or refinance again within 2.6 years, refinancing now may not be worthwhile.
Interest Rate Environment and Timing Considerations
Your break-even calculation assumes interest rates remain stable. However, Singapore's mortgage market is dynamic, particularly with the shift to SORA-based pricing (Singapore Overnight Rate Average) which replaced SIBOR in 2022.
The chart below shows recent SORA trends to help you understand how rates have moved and inform your refinancing timing:
When evaluating refinancing, consider the current interest rate environment. If rates are historically low and expected to rise, refinancing into a fixed-rate package may be wise even with a longer break-even period. Conversely, if rates are elevated and expected to fall, you might wait before refinancing.
Most banks offer a refinancing window starting 4 months before your loan renewal date. This is the optimal time to initiate refinancing discussions, as you can secure competitive rates before your current rate resets.
On Homejourney, you can track real-time SORA rates to monitor when conditions are most favourable for refinancing. This data-driven approach removes guesswork from your decision-making process.
Special Considerations for Investment Properties and Second Mortgages
If you're refinancing an investment property or second property loan, your analysis must account for additional factors. Investment property refinancing often comes with slightly higher interest rates compared to owner-occupied properties, typically 0.25-0.50% higher.
For rental property refinance calculations, factor in how the monthly savings impact your rental income yield. If your monthly savings is S$300 but your property generates S$2,000 in monthly rental income, the refinancing improves your cash flow by 15%—a significant benefit beyond just interest savings.
Investor mortgage terms may also differ from residential mortgages. Some banks offer shorter lock-in periods (6-12 months) for investment properties, which reduces your early repayment penalty risk. This can significantly improve your break-even timeline.
For comprehensive guidance on investment property refinancing, refer to our detailed guide on Refinancing Investment Properties: Complete Guide for Singapore Owners .
