How to judge a refinance offer
Calculate the monthly saving from the lower rate, then divide the total switching cost by that saving. The result is how many months you must stay in the loan to come out ahead. If you might sell, move or repay before then, refinancing loses money.
As a rough guide, a rate reduction of 0.5 percentage points or more on a large remaining balance with several years left is usually worth investigating.
The trap to avoid
Many refinance offers reset the tenure back to the original length. A lower rate over a longer term can increase total interest even while lowering the monthly payment. Keep the remaining tenure the same when comparing, which is what this calculator does, so you are comparing like with like.
Frequently asked questions
What fees should I include?
Processing or arrangement fees, legal and valuation charges, any prepayment penalty on the old loan, and stamp duty or documentation charges where applicable.
How much rate reduction makes refinancing worthwhile?
Commonly around 0.5 percentage points or more, but it depends on balance, remaining term and fees. The break-even months figure is the real answer.
Does refinancing hurt my credit score?
There is usually a small temporary dip from the new credit application, recovering within months as you make payments on the new loan.
Can I refinance with my existing lender?
Often yes, and it is worth asking. Many lenders will reduce your rate for a small conversion fee rather than lose you to a competitor, which is far cheaper than a full switch.
Should I extend the tenure when refinancing?
Only if you genuinely need lower monthly payments. Extending increases total interest even at a lower rate.
Is a fixed or floating rate better when refinancing?
Fixed gives certainty and protects against rises; floating usually starts lower and benefits if rates fall. Choose based on how much payment certainty you need.