Refinancing your home loan: How to calculate potential savings

Why Malaysians Consider Refinancing

If you already have a housing loan, you might have thought about refinancing. Simply put, refinancing means replacing your current mortgage with a new one—usually at a lower interest rate or with a revised tenure. The main reason people refinance is to save money on monthly instalments and total interest.

But how do you know if refinancing will really benefit you? The key is in calculating potential savings.

Step 1: Compare Your Current and New Loan Rates

The first thing to look at is the interest rate difference. Even a small cut can save thousands over time.

Example:

• Current loan: 4.2% interest
• New refinancing offer: 3.6% interest
• Rate drop: 0.6%

👉 Small differences add up—especially if your outstanding balance is still large.

Step 2: Check Your Outstanding Balance

Savings depend on how much you still owe. The higher your balance, the more you stand to save.

You can quickly check what’s left on your loan with this loan balance tool.

Step 3: Account for Refinancing Costs

Refinancing isn’t free. Typical costs include:

• Legal fees
• Valuation fees
• Stamp duty on the new loan (0.5%)
• Lock-in penalty (if your current loan hasn’t passed the lock-in period)

Estimate upfront charges using this legal fee estimator.

Step 4: Work Out Monthly and Lifetime Savings

Refinancing saves you in two ways:

1. Lower monthly instalments
2. Lower total interest paid

Example:

• Current loan: RM400,000 balance, 20 years, 4.2% → RM2,470/month
• Refinanced loan: RM400,000 balance, 20 years, 3.6% → RM2,340/month
• Monthly saving = RM130
• Over 20 years = RM31,200 total saved (before fees)

👉 Try the loan refinancing calculator for exact numbers

Step 5: Calculate Your Break-Even Point

The break-even point tells you when your savings surpass the refinancing costs.

Formula: Break-even (months)=Total Refinancing FeesMonthly Savings\text{Break-even (months)} = \frac{\text{Total Refinancing Fees}}{\text{Monthly Savings}}

Example:

• Fees = RM8,000
• Savings = RM130/month
• Break-even = 8,000 ÷ 130 ≈ 62 months (just over 5 years)

If you plan to keep your property beyond this, refinancing makes sense.

When Refinancing May Not Be Worth It

• Loan is close to maturity.
• You’ll sell the property within a few years.
• Upfront fees outweigh total savings.
• Lock-in penalty cancels out benefits.

FAQs About Refinancing in Malaysia

1. How do I know if refinancing is worth it?
Check the rate difference, calculate monthly savings, deduct fees, and see if your break-even period is shorter than how long you’ll keep the property.

2. Do I always pay stamp duty when refinancing?
Yes, a 0.5% duty applies to the refinanced loan amount.

3. Can I refinance during the lock-in period?
You can, but you’ll face a penalty (often 2–3% of the loan balance).

4. What is a cash-out refinance?
It’s when you borrow more than your current balance to access equity for renovations or other needs.

5. How long should I stay in the home for refinancing to pay off?
Generally, if you plan to hold the property for more than 5 years after refinancing, the savings outweigh the costs.