How Much Can You Save by Refinancing Your Mortgage?
Refinancing is often discussed in general terms "lower your rate, save money" but the real value comes down to specific numbers: your outstanding balance, the rate gap, your remaining term, and the switching costs involved. Once you run those figures, the potential saving (or lack of one) becomes a lot clearer.
TL;DR
- Refinancing savings depend on four inputs: outstanding balance, current rate, new rate, and remaining term.
- A 1% rate reduction on a AED 1.5 million outstanding balance can save roughly AED 15,000 per year in interest.
- Total refinancing costs typically run 1.5%–3% of your outstanding balance, including the capped early settlement fee.
- Your break-even point switching costs divided by monthly savings tells you how long before refinancing becomes pure benefit.
- Savings compound over time, so borrowers with a longer remaining term generally see a larger total benefit from refinancing.
- A refinance calculator does this maths instantly, letting you compare your current loan against real alternative offers.
The Core Inputs That Determine Your Savings
Outstanding Balance
The larger your remaining loan balance, the greater the absolute savings from a given rate reduction, simply because interest is calculated on a bigger number. Refinancing early in your loan term, when the balance is still substantial, typically produces larger total savings than refinancing near the end.
The Rate Gap
The difference between your current rate and the new rate on offer is the single biggest driver of your savings. As a rough illustration, a 1% rate reduction on a AED 1.5 million outstanding balance can save in the region of AED 15,000 per year in interest though the exact figure depends on your remaining term and how the reduction is structured.
Remaining Term
The longer you have left on your mortgage, the more months you'll benefit from the lower rate, which increases your total lifetime saving. A borrower with 20 years remaining will typically see a larger cumulative benefit from refinancing than one with just 5 years left, even at the same rate gap.
Calculating Your Break-Even Point
Because refinancing carries upfront costs a capped early settlement fee (1% of your outstanding balance or AED 10,000, whichever is lower, plus VAT), along with new mortgage registration, valuation, and processing fees it's essential to weigh the switching cost against your monthly saving.
The Formula
Break-even point (in months) = Total switching cost ÷ Monthly saving
For example, if your total switching costs come to AED 30,000 and refinancing saves you AED 1,200 per month, your break-even point is 25 months after which every additional month represents pure savings.
What a Good Break-Even Point Looks Like
There's no single universal answer, but many borrowers consider a break-even point of under 18–24 months a strong indicator that refinancing is worthwhile, provided they plan to hold the property well beyond that point.
A Worked Example
Consider a borrower with an outstanding balance of AED 1,500,000, currently on a rate of 5.25%, exploring a new offer at 3.99%. Refinancing to the new rate could save in the region of AED 15,000–20,000 per year, depending on the exact remaining term. If total switching costs come to approximately AED 30,000–40,000, the break-even point would typically fall somewhere between 18 and 30 months — meaning a borrower planning to hold the property for several more years stands to gain substantially from switching.
Costs to Weigh Against the Savings
- Early settlement fee: capped at 1% of your outstanding balance or AED 10,000, whichever is lower, plus VAT.
- New mortgage registration fee: typically around 0.25% of the new loan amount.
- Valuation fee: usually a few thousand dirhams, sometimes waived as a promotional incentive by the new lender.
- Bank processing fee: commonly up to around 1% of the new loan amount, depending on the lender.
Together, these typically bring total refinancing costs to somewhere between 1.5% and 3% of your outstanding balance.
Frequently Asked Questions
1. How much could I realistically save by refinancing?
It depends heavily on your outstanding balance, the rate gap, and your remaining term, but even a 1% rate reduction on a substantial balance can save tens of thousands of dirhams over the remaining loan life.
2. What is a break-even point and why does it matter?
It's the point at which your accumulated monthly savings equal your total switching costs. Beyond that point, refinancing is pure financial benefit, provided you keep the property.
3. Are refinancing costs the same as a new mortgage's upfront costs?
Largely similar registration, valuation, and processing fees apply but refinancing also includes an early settlement fee on your existing loan, capped by the Central Bank.
4. Is refinancing worth it if I only have a few years left on my mortgage?
It can be, but the total potential saving is smaller with less time remaining, so it's important to calculate your specific break-even point before deciding.
5. Does refinancing always mean switching to a different bank?
No. Some borrowers refinance within their existing bank by renegotiating their rate, which can sometimes avoid certain switching costs altogether.
6. How do I compare my current mortgage against a new offer accurately?
Gather your current outstanding balance and rate from your bank's liability letter, then compare against a specific new offer using a refinance calculator to see your real, numbers-based saving.
Final Thoughts
The value of refinancing comes down to concrete figures, not general assumptions. Once you know your outstanding balance, the real rate gap available to you, and your switching costs, the decision becomes a straightforward calculation rather than a guess.
Calculate Your Own Potential Savings
ClearRate's Refinance Calculator lets you enter your current mortgage details alongside a prospective new rate to see your estimated savings and break-even point instantly.
Message ClearRate on WhatsApp if you'd like help comparing your current mortgage against the market.
