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 favour. The key question every Singapore homeowner asks is simple: Will refinancing actually save me money? The answer requires a careful calculation that accounts for interest rate differences, refinancing costs, and your remaining loan tenure.
At Homejourney, we believe transparent financial decisions build trust. This guide walks you through the exact methodology to calculate whether refinancing makes sense for your situation, helping you avoid costly mistakes and identify genuine savings opportunities.
Understanding the Refinancing Break-Even Point
The break-even point is the moment when your interest savings exceed your refinancing costs. This is the most critical number in your refinancing decision. Until you reach this point, you're technically losing money. After this point, every month brings pure savings.
Here's the fundamental calculation:
Break-Even Period (in months) = Total Refinancing Costs ÷ Monthly Interest Savings
For example, if your total refinancing costs are S$3,000 and you save S$150 per month on interest, your break-even point is 20 months. If you plan to stay in your home for at least 20 months after refinancing, the move makes financial sense.
Calculating Your Monthly Interest Savings
Start by determining how much your monthly payment will decrease. This depends on three factors: your remaining loan amount, the interest rate difference, and your remaining loan tenure.
The most straightforward approach uses this formula:
Monthly Savings ≈ (Remaining Loan Amount × Interest Rate Difference) ÷ 12
Let's work through a real example. Suppose you have a S$500,000 remaining balance on your current loan at 3.5% interest, and you've found a refinancing rate of 2.8%. Your interest rate difference is 0.7% (or 0.007 as a decimal).
Monthly savings = (S$500,000 × 0.007) ÷ 12 = approximately S$292 per month
This calculation provides a quick estimate, but for precise numbers, use the refinancing calculators available on Homejourney's Bank Rates page, which account for your exact remaining tenure and loan structure.
Identifying All Refinancing Costs
This is where many homeowners stumble. Refinancing isn't free, and hidden costs can quickly erode your savings. Understanding every expense ensures your break-even calculation is accurate.
Legal Fees for Refinancing
When you refinance, the new bank must register their mortgage against your property. This requires legal work to discharge the old mortgage and register the new one. Legal fees typically range from S$800 to S$1,500, depending on your property type and the complexity of the transaction. Some banks offer legal fee subsidies or waivers, which can reduce this cost significantly.
Valuation Fees
Most banks require a fresh property valuation to confirm your home's current market value. This valuation fee usually costs S$400 to S$800 for private residential properties. Some banks waive this fee for refinancing customers, so always ask during your initial inquiry.
Clawback Penalties and Lock-In Clauses
This is the most significant hidden cost many overlook. If your current loan is still within its lock-in period, you may face a clawback penalty of 1.5% on your remaining loan balance. For a S$500,000 loan, this equals S$7,500—a substantial amount that dramatically affects your break-even calculation.
For example, if your remaining loan is S$500,000 with a 1.5% clawback penalty, you'll pay S$7,500 just to exit your current loan. This must be added to your total refinancing costs before calculating your break-even point.
Early Redemption Fees
Some loans charge early redemption fees if you pay down the principal ahead of schedule. Check your current loan agreement for any such clauses, as these can add S$500 to S$2,000 to your refinancing costs.
Processing and Administrative Fees
New banks may charge processing fees (typically S$300 to S$600) for handling your refinancing application. Always confirm these upfront.
The Complete Refinancing Cost Formula
Add up all potential costs to get your total refinancing expense:
Total Refinancing Cost = Legal Fees + Valuation Fee + Clawback Penalty + Early Redemption Fees + Processing Fees - Cash Rebate
Here's a realistic example for a S$500,000 loan:
- Legal fees: S$1,200
- Valuation fee: S$600
- Clawback penalty (1.5% of S$500,000): S$7,500
- Processing fee: S$400
- Cash rebate from new bank: -S$2,300
- Total refinancing cost: S$7,400
With monthly savings of S$292, your break-even point would be approximately 25 months (7,400 ÷ 292). If you plan to stay in your home for at least two years after refinancing, this move becomes financially worthwhile.
Timing Your Refinancing Decision
When you refinance matters significantly. The best time to refinance is typically after your lock-in period ends and when interest rate differences are substantial.
Most Singapore home loans come with lock-in periods of 2 to 3 years. During this period, refinancing triggers the clawback penalty. However, once your lock-in period expires, this penalty disappears, making refinancing far more attractive financially.
Track current SORA rates and compare them against your existing rate. Banks currently offer rates ranging from 1M SORA + 0% (approximately 1.09%) to fixed rates of 1.30% to 1.78% depending on the lock-in period and bank. If your current rate is significantly higher—typically 0.5% or more—refinancing becomes increasingly attractive.
The chart below shows recent interest rate trends in Singapore to help you understand how rates have moved:
As you can see from the chart above, understanding rate movements helps you time your refinancing decision. If rates are rising, refinancing to a fixed rate locks in current savings. If rates are falling, waiting may bring even better opportunities.
Step-by-Step Refinancing Calculation Worksheet
Use this structured approach to calculate your specific situation:
- Gather your current loan details: Remaining balance, current interest rate, remaining tenure, lock-in period end date
- Research refinancing rates: Compare rates from DBS, OCBC, UOB, HSBC, Standard Chartered, and other major banks. Homejourney's Bank Rates page displays current rates from all major lenders, making comparison instant
- Calculate monthly interest savings: Use the formula: (Remaining Balance × Interest Rate Difference) ÷ 12
- List all refinancing costs: Contact your current bank and prospective new banks for exact figures on legal fees, valuation fees, and any penalties
- Determine your clawback penalty: Check if you're still within your lock-in period. If yes, calculate 1.5% of your remaining loan balance
- Account for cash rebates: Most banks offer S$2,000 to S$2,800 cash rebates for refinancing. Subtract this from your total costs
- Calculate your break-even point: Divide total refinancing costs by monthly savings to determine how many months until you start saving money
- Assess your timeline: If you plan to stay in your home beyond the break-even period, refinancing makes financial sense
Real-World Refinancing Scenarios
Scenario 1: Post Lock-In Period Refinancing (Best Case)
Situation: Your 3-year lock-in period just ended. You have S$400,000 remaining at 3.2%, and you can refinance at 2.5%.
Monthly savings: (S$400,000 × 0.007) ÷ 12 = S$233
Total refinancing costs: S$1,200 (legal) + S$600 (valuation) + S$400 (processing) - S$2,300 (rebate) = -S$100 (you actually gain S$100)
Break-even: Immediate. You save money from month one.
Verdict: Refinance immediately. This is an ideal refinancing scenario.
Scenario 2: Mid Lock-In Period Refinancing (Challenging)
Situation: You're 18 months into a 3-year lock-in period. You have S$600,000 remaining at 3.8%, and you can refinance at 2.9%.
Monthly savings: (S$600,000 × 0.009) ÷ 12 = S$450
Total refinancing costs: S$1,200 (legal) + S$600 (valuation) + S$9,000 (clawback: 1.5% of S$600,000) + S$400 (processing) - S$2,300 (rebate) = S$8,900
Break-even: 8,900 ÷ 450 = approximately 20 months
Verdict: Wait 18 months until your lock-in period ends. The clawback penalty makes refinancing uneconomical now, but it becomes attractive once the lock-in period expires.
Using Homejourney's Refinancing Tools
Rather than performing these calculations manually, Homejourney simplifies the process through our integrated tools. Our Bank Rates page features:
- Live rate comparison: See current rates from DBS, OCBC, UOB, HSBC, Standard Chartered, and more in one place
- Refinancing calculator: Input your loan details and instantly see potential monthly savings and break-even points
- Multi-bank application: Submit one refinancing application to all major banks simultaneously. Let banks compete for your business and receive multiple offers
- Real-time SORA tracking: Monitor 1M and 3M SORA rates to time your refinancing decision perfectly
- Singpass integration: Apply via Singpass for instant data verification and faster processing
This approach eliminates the need to visit multiple bank branches and ensures you're comparing accurate, current rates. Homejourney's commitment to user safety means all banks in our comparison are verified partners, and your personal information is protected throughout the application process.
Key Factors That Make Refinancing Worth It
Beyond the numbers, consider these qualitative factors:
- Interest rate environment: If rates are significantly higher than available rates, refinancing becomes more attractive
- Remaining tenure: Longer remaining tenures amplify your monthly savings. If you have 20+ years remaining, refinancing becomes more valuable
- Loan amount: Larger loans generate larger monthly savings, making refinancing more worthwhile despite fixed costs
- Lock-in period status: Being outside your lock-in period eliminates the clawback penalty, dramatically improving your break-even calculation
- Financial stability: Ensure you can comfortably afford the refinancing process and any temporary payment adjustments
- Future plans: If you're considering selling within your break-even period, refinancing may not be worthwhile
Common Refinancing Mistakes to Avoid
Understanding what not to do is equally important:
- Ignoring the clawback penalty: Many homeowners overlook this cost and refinance during their lock-in period, losing thousands
- Focusing only on interest rates: A slightly lower rate doesn't guarantee savings if refinancing costs are high
- Not comparing all banks: Different banks offer different rates, rebates, and fee structures. Always compare multiple options
- Extending your loan tenure: While lower monthly payments seem attractive, extending your tenure increases total interest paid. Maintain your original tenure when refinancing
- Refinancing too frequently: Each refinancing incurs costs. Refinancing more than once every 3-5 years rarely makes financial sense
- Failing to negotiate: Banks have flexibility on rates and rebates. Always ask if they can improve their initial offer
