How to Calculate If Refinancing is Worth It: A Homejourney Guide
Refinancing your home loan can save you thousands of dollars, but only if the numbers work in your favour. The key question every Singapore homeowner asks is: "Will I actually save money?" The answer requires a straightforward calculation that accounts for your current loan, potential new rates, and refinancing costs.
At Homejourney, we believe transparent financial decisions start with understanding your numbers. This guide walks you through the exact calculations you need to determine whether refinancing makes financial sense for your situation.
Understanding the Refinancing Break-Even Point
The break-even point is the moment when your monthly savings from a lower interest rate exceed the costs you paid to refinance. Until you reach this point, you're technically "in the red" on your refinancing decision. Once you pass it, every month delivers pure savings.
This is the single most important number in your refinancing decision. If you plan to stay in your home beyond the break-even point, refinancing likely makes sense. If you're planning to sell or move before reaching it, refinancing may not be worth the effort and expense.
The calculation itself is simple: divide your total refinancing costs by your monthly savings, and you'll know exactly how many months until you break even.
Step-by-Step Calculation: The Refinancing Formula
Step 1: Calculate Your Current Monthly Payment
Start with your existing loan details. You'll need three pieces of information: your current loan amount (the remaining balance, not the original amount), your current interest rate, and your remaining loan tenure in months.
Your bank statement shows your current monthly payment, but you can verify it using the formula: Monthly Payment = Loan Balance × [Rate × (1 + Rate)^Months] / [(1 + Rate)^Months - 1], where Rate is your monthly interest rate (annual rate ÷ 12).
For most Singapore homeowners with SORA-based mortgages, your rate changes monthly based on the 3-month or 1-month SORA benchmark plus your bank's spread. If you're on a fixed rate, your payment remains constant throughout the fixed period.
Step 2: Research Refinancing Rates from Multiple Banks
Don't rely on a single bank's offer. Different banks offer different rates, spreads, and promotional packages. DBS, OCBC, UOB, HSBC, Standard Chartered, Maybank, and CIMB all compete for refinancing business with varying terms.
On Homejourney's Bank Rates page, you can compare current refinancing rates from all major banks in one place. This eliminates the need to visit multiple bank websites or branches. Look for rates that are at least 0.5% lower than your current rate to make refinancing worthwhile.
Pay attention to whether rates are promotional (temporary) or standard (ongoing). A 2.0% rate for Year 1 that jumps to 2.8% in Year 2 looks attractive initially but may not deliver long-term savings compared to a consistent 2.3% rate.
Step 3: Calculate Your New Monthly Payment
Using your new refinancing rate and remaining loan tenure, calculate what your monthly payment would be under the new loan. Use the same formula as Step 1, but with your new interest rate.
For example: If your current payment is S$2,500 at 2.8% and you're refinancing to 2.2%, your new payment might drop to S$2,350 (depending on your remaining tenure). That's S$150 in monthly savings.
Remember that if you extend your loan tenure during refinancing, your monthly payment will drop further, but you'll pay more total interest over the life of the loan. Most financial advisors recommend keeping your tenure the same to maximize long-term savings.
Step 4: Identify All Refinancing Costs
This is where many homeowners underestimate the true cost of refinancing. The obvious costs include legal fees (typically S$800-S$1,200) and valuation fees (S$400-S$600), but hidden costs can add up quickly.
Your current bank may charge an early repayment fee or clawback if you're still within a lock-in period. HDB loans typically have no clawback, but private bank loans often charge 0.75% to 1.5% of your outstanding loan amount if you refinance within the first few years. On a S$500,000 loan, a 1% clawback equals S$5,000.
Additional costs to factor in: property insurance (may be required by the new bank), appraisal fees, and administrative charges. Some banks waive certain fees as promotional incentives, which can reduce your total refinancing costs significantly.
For a detailed breakdown of all potential costs, read our guide on Hidden Costs of Refinancing: What You Need to Know Before Switching Banks .
Step 5: Calculate Your Monthly Savings
Subtract your new monthly payment from your current monthly payment. This is your gross monthly saving.
Example: S$2,500 (current) - S$2,350 (new) = S$150 monthly savings
However, if you're switching from a fixed rate to a floating SORA rate, remember that your new payment will fluctuate with SORA movements. Your "savings" might disappear if SORA rises significantly. Conversely, if SORA falls, your savings could exceed projections.
Step 6: Calculate Your Break-Even Point
Divide your total refinancing costs by your monthly savings:
Break-Even Months = Total Refinancing Costs ÷ Monthly Savings
Example: S$6,500 total costs ÷ S$150 monthly savings = 43.3 months (approximately 3.6 years)
This means you'll recover your refinancing costs after 43 months. Any months beyond that deliver pure savings. If you plan to stay in your home for at least 5 years, this refinancing makes strong financial sense.
Real-World Refinancing Scenarios in Singapore
Scenario 1: HDB Loan Refinancing (No Clawback)
Sarah has an HDB loan with a S$300,000 outstanding balance at 2.6% with 15 years remaining. Her monthly payment is S$2,100. She's refinancing to OCBC at 2.0% (1M SORA + 0.98%).
New monthly payment: S$1,950 (S$150 savings per month)
Refinancing costs: S$1,200 legal + S$500 valuation = S$1,700 total (HDB loans have no clawback)
Break-even: S$1,700 ÷ S$150 = 11.3 months
Sarah breaks even in just over a year, making this an excellent refinancing decision if she plans to stay beyond that point.
Scenario 2: Private Property Refinancing (With Clawback)
Michael has a private property loan with S$600,000 outstanding at 2.9% with 20 years remaining. His current monthly payment is S$3,200. He's refinancing to UOB at 2.25%.
New monthly payment: S$2,980 (S$220 savings per month)
Refinancing costs: S$1,000 legal + S$600 valuation + S$6,000 clawback (1% of S$600,000) = S$7,600 total
Break-even: S$7,600 ÷ S$220 = 34.5 months (approximately 2.9 years)
Michael's clawback significantly extends his break-even period, but if he plans to stay 5+ years, the long-term savings still justify refinancing.
Interest Rate Environment: Timing Your Refinancing
The interest rate environment dramatically affects whether refinancing makes sense. When rates are falling, refinancing becomes more attractive because you lock in lower rates. When rates are rising, refinancing becomes less attractive unless you're switching from a floating to a fixed rate for stability.
The chart below shows recent SORA trends to help you understand how rates have moved:
If you're currently on a floating SORA rate and rates are expected to rise, refinancing to a fixed rate (even at a slightly higher rate) might make sense for payment certainty. Conversely, if you're on a fixed rate and rates are falling, switching to a floating SORA rate could deliver significant savings.
Track real-time SORA rates on Homejourney to monitor market conditions and time your refinancing decision optimally. The 3-month SORA and 1-month SORA rates update daily on our Bank Rates page, helping you stay informed about rate movements.
Using Homejourney's Refinancing Calculator
Rather than doing these calculations manually, Homejourney's refinancing calculator automates the entire process. Input your current loan details, select refinancing rates from major banks, and the calculator instantly shows your monthly savings and break-even point.
Our calculator accounts for all refinancing costs, including clawback fees, legal fees, and valuation charges. It also lets you compare multiple refinancing scenarios side-by-side, so you can see exactly how switching to DBS versus OCBC versus UOB would impact your finances.
Access the calculator on our Bank Rates page and start comparing refinancing options from DBS, OCBC, UOB, HSBC, Standard Chartered, and more in one place.
Key Factors That Make Refinancing Worth It
- Rate difference of at least 0.5%: Smaller rate cuts rarely justify refinancing costs
- Break-even within 3-4 years: Anything longer makes refinancing riskier
- Plans to stay in your home: You must remain past the break-even point to benefit
- No or low clawback fees: HDB loans are refinancing-friendly; private bank loans may have significant penalties
- Falling interest rate environment: Refinancing is most attractive when rates are declining
- Bank promotional incentives: Cash rebates and fee waivers can reduce your break-even period significantly
When Refinancing Doesn't Make Financial Sense
Refinancing isn't always the right choice. If your break-even point is more than 5 years away, the financial benefit becomes uncertain because interest rates could change dramatically, or you might sell or move before recovering your costs.
If you're within the first 2 years of your mortgage with a high clawback fee, refinancing costs may be prohibitively expensive. Similarly, if you're planning to sell your property within the next 3 years, refinancing likely won't deliver enough savings to justify the effort.
If you're happy with your current bank's service and rates are only marginally lower elsewhere, the convenience of staying put might outweigh the modest savings from refinancing.
Simplifying Refinancing with Homejourney
Once you've confirmed that refinancing makes financial sense, Homejourney makes the application process significantly easier. Instead of visiting multiple bank branches or calling different mortgage specialists, you can submit one refinancing application through Homejourney and receive offers from all major banks simultaneously.
Using Singpass integration, your application auto-fills with your verified personal and financial data, accelerating the approval process. Banks then compete for your business by offering their best rates and terms, giving you genuine negotiating power.
Our Mortgage Brokers provide personalized guidance throughout the refinancing journey, answering questions about rates, terms, and the application process. This support is particularly valuable if you're refinancing for the first time or have complex financial circumstances.
Start your refinancing journey on Homejourney's Bank Rates page today.
Frequently Asked Questions About Refinancing Calculations
Q: Should I include property insurance costs in my refinancing cost calculation?
A: Only if your new bank requires insurance as a condition of refinancing and your current bank doesn't. If you're already paying for insurance, the cost doesn't change, so it shouldn't factor into your refinancing decision. However, if switching banks means switching insurance providers at a higher premium, that additional cost should be included.
Q: How do I account for SORA rate fluctuations when calculating refinancing savings?
A: Use your current SORA rate as the baseline for calculations, but acknowledge that your actual savings will vary as SORA moves. If SORA is currently 3.5% and you're refinancing at SORA + 0.98%, your rate is 4.48%. If SORA rises to 4.0%, your rate becomes 4.98%. Project conservative scenarios (SORA rising 0.5-1.0%) to understand worst-case savings.
