How to Calculate If Refinancing Is Worth It: A Step-by-Step 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 homeowner asks is: will the savings from a lower interest rate outweigh the costs of switching banks? This is where understanding your break-even point becomes critical.
At Homejourney, we believe in empowering Singapore homeowners with transparent, trustworthy financial guidance. This guide walks you through the exact calculations you need to determine whether refinancing makes financial sense for your situation.
Understanding the Refinancing Equation
Refinancing isn't simply about finding a lower interest rate—it's about comparing your total costs before and after the switch. To calculate if refinancing is worth it, you need to understand three key components:
- Your current loan details: Outstanding balance, current interest rate, remaining tenure
- The new loan offer: New interest rate, lock-in period, tenure options
- Switching costs: Legal fees, valuation fees, and any early redemption penalties
The mortgage calculation formula used by banks and refinancing calculators is straightforward. Your monthly repayment is calculated using: M = P [ r(1 + r)^n ] / [ (1 + r)^n – 1 ], where M is your monthly payment, P is the principal loan amount, r is the monthly interest rate, and n is the number of payments in months.[2]
Understanding this formula helps you see exactly how interest rate changes affect your monthly payments and total interest paid over the loan's remaining tenure.
Step 1: Calculate Your Current Loan Status
Before comparing refinancing offers, you need a clear picture of your existing mortgage. Contact your current bank and request:
- Outstanding loan balance (as of today)
- Current interest rate (fixed or floating)
- Remaining loan tenure in months
- Monthly repayment amount
- Lock-in period end date (if applicable)
- Early redemption penalty (if you exit before lock-in ends)
For example, if you have an outstanding balance of S$350,000 at 2.5% interest with 20 years remaining, your monthly payment is approximately S$1,730. This becomes your baseline for comparison.
If you're within a lock-in period, check if there's a penalty for early redemption. Most Singapore banks charge 1.5% of the outstanding balance if you refinance before the lock-in period ends.[3] This cost must be factored into your break-even calculation.
Step 2: Research Current Refinancing Rates from Top Banks
Singapore's major banks—DBS, OCBC, UOB, HSBC, Standard Chartered, Maybank, and others—offer competitive refinancing rates that vary based on loan amount, tenure, and whether you choose fixed or floating rates.[3]
The best approach is to compare rates across multiple banks simultaneously. On Homejourney's bank rates page, you can instantly see refinancing rates from DBS, OCBC, UOB, HSBC, Standard Chartered, and more in one place. This eliminates the need to visit multiple bank branches or websites.
As of January 2026, refinancing rates typically range from 1.35% to 1.78% for fixed rates in the first year, depending on the bank and loan size.[3] Floating rates are often quoted as SORA + a fixed margin (for example, 1M SORA + 0.25%).
The chart below shows recent SORA trends to help you understand how rates have moved and whether the market is favourable for refinancing:
When comparing offers, pay attention to the lock-in period (typically 2-3 years) and free conversion options. Some banks allow you to switch from fixed to floating rates after 12 months, while others require you to wait 24 or 36 months.[3]
Step 3: Calculate Refinancing Costs
This is where many homeowners make mistakes. Refinancing involves several costs that reduce your net savings:
- Legal fees: Typically S$800-1,200 for refinancing
- Valuation fees: Usually S$400-600
- Early redemption penalty: 1.5% of outstanding balance if within lock-in period
- Stamp duty: Minimal for refinancing (usually S$10)
However, here's the good news: most new banks reimburse these costs through cash rebates and subsidies. According to current market offerings, banks typically provide cash rebates of S$2,000-2,800 for loans above S$500,000.[3] These rebates are designed to cover your switching costs and often leave you with excess cash.
Let's say your total switching costs are S$2,200 (legal + valuation + stamp duty). If your new bank offers a S$2,500 cash rebate, you actually come out S$300 ahead before calculating any interest savings.
For a detailed breakdown of all hidden costs, read our guide on hidden costs of mortgage refinancing.
Step 4: Calculate Your Monthly Savings
Now for the core calculation. Here's the formula:
Monthly Savings = Current Monthly Payment - New Monthly Payment
Using our earlier example:
- Current loan: S$350,000 at 2.5% with 20 years remaining = S$1,730/month
- New refinancing offer: S$350,000 at 1.65% with 20 years remaining = S$1,518/month
- Monthly savings: S$1,730 - S$1,518 = S$212/month
This S$212 monthly saving is your key metric. Multiply it by 12 to see annual savings: S$2,544 per year.
Homejourney's refinancing calculator automates these calculations instantly. Simply input your current loan details and the new rate offer, and the calculator shows your exact monthly savings in seconds. This removes the guesswork and helps you compare multiple bank offers quickly.
Step 5: Calculate Your Break-Even Point
The break-even point is the number of months it takes for your monthly savings to cover the switching costs. This is the most important number in your refinancing decision.
Break-Even Point (months) = Total Switching Costs ÷ Monthly Savings
Using our example:
- Total switching costs: S$2,200 (after accounting for the S$2,500 rebate, you're actually S$300 ahead, so let's use S$0 net cost)
- Monthly savings: S$212
- Break-even point: S$0 ÷ S$212 = 0 months
In this scenario, you break even immediately and start saving money from day one. This is an ideal refinancing situation.
However, let's consider a more conservative example where switching costs are S$1,500 and monthly savings are S$150:
- Break-even point: S$1,500 ÷ S$150 = 10 months
This means you need to stay in the new loan for at least 10 months to recover your switching costs. After 10 months, every dollar of savings is pure benefit.
The general rule: If your break-even point is less than 2-3 years, refinancing is usually worth considering. If it's longer than 5 years, you should carefully evaluate whether you'll remain in the property long enough to recoup the costs.
Step 6: Consider Your Time Horizon
A critical factor many homeowners overlook is how long they plan to keep the property. Your break-even calculation only matters if you'll be in the home long enough to benefit from the refinancing.
Ask yourself:
- Am I planning to sell this property in the next 2-3 years?
- Will I upgrade to a larger property soon?
- Is this my long-term family home?
If you're selling within your break-even period, refinancing may not make financial sense. However, if you're staying for 10+ years, even a break-even point of 3-4 years means you'll enjoy significant cumulative savings.
Additionally, consider the lock-in period of your new loan. Most refinancing packages come with 2-3 year lock-in periods. If you exit early due to a property sale, you may face penalties that offset your savings.
Real-World Refinancing Examples
Example 1: Strong Refinancing Case
- Current loan: S$500,000 at 2.8%, 15 years remaining, S$3,558/month
- New offer: S$500,000 at 1.50%, 15 years remaining, S$3,089/month
- Monthly savings: S$469
- Switching costs: S$2,000 (net cost after S$2,300 rebate = -S$300)
- Break-even: Already ahead by S$300
- Verdict: Refinance immediately
Example 2: Moderate Refinancing Case
- Current loan: S$300,000 at 2.3%, 18 years remaining, S$1,703/month
- New offer: S$300,000 at 1.80%, 18 years remaining, S$1,586/month
- Monthly savings: S$117
- Switching costs: S$1,800
- Break-even: 15.4 months (approximately 1 year 3 months)
- Verdict: Refinance if you're staying at least 3 years
Example 3: Weak Refinancing Case
- Current loan: S$250,000 at 2.1%, 10 years remaining, S$2,433/month
- New offer: S$250,000 at 2.05%, 10 years remaining, S$2,408/month
- Monthly savings: S$25
- Switching costs: S$1,600
- Break-even: 64 months (5+ years)
- Verdict: Don't refinance unless you're certain you'll stay 7+ years
Fixed vs Floating Rate Refinancing Considerations
Your refinancing calculation should also factor in whether you're switching from fixed to floating rates or vice versa. This affects your long-term savings potential.
Floating rate refinancing: Offers lower initial rates (often SORA + 0.25% to 0.35%) but exposes you to rate increases if SORA rises. Your monthly payment could increase, reducing your savings.[2]
Fixed rate refinancing: Provides payment certainty and protects you from rate increases. The rate is higher than floating initially, but your savings are predictable and guaranteed.
For your break-even calculation, use the rate you're actually refinancing into. If you're unsure about future rate movements, use a conservative estimate or stick with fixed rates for predictability.
The Homejourney Advantage: Simplifying Your Refinancing Decision
Calculating whether refinancing is worth it can feel overwhelming, which is why Homejourney has built tools and features specifically to help Singapore homeowners make confident decisions:
- Compare refinancing rates instantly: See rates from DBS, OCBC, UOB, HSBC, Standard Chartered, and more on our bank rates page
- Automatic break-even calculation: Our refinancing calculator instantly shows your monthly savings and break-even point
- Multi-bank application: Submit one refinancing application and receive competing offers from all major banks—no need to visit branches individually
- Real-time SORA tracking: Monitor current interest rates to time your refinancing decision perfectly
- Transparent cost breakdown: See exactly what you'll pay in switching costs and what rebates you'll receive
- Expert guidance: Connect with Homejourney Mortgage Brokers through our loan application process for personalized advice
At Homejourney, we prioritize your safety and trust by providing transparent, verified information and connecting you with legitimate, regulated lenders. Our multi-bank application system means banks compete for your business, often resulting in better rates and higher rebates than you'd negotiate individually.
