Quick answer: Moving a 700,000 balance with 300 months left from 6% to 4.5% cuts the payment from 4,510.11 to 3,890.83, a saving of 619.28 a month; 15,000 of costs are paid back in 25 months and the total saving is 170,784.74.
How it's calculated
Both payments use M = P·r ÷ (1 − (1 + r)^−n) on the same remaining balance: the current one at your rate over the months left, the new one at the new rate and term.
Break-even month = refinancing costs ÷ monthly saving, rounded up. If you expect to sell or settle before then, refinancing loses money. Some calculators count only the interest saved each month, which usually covers the costs sooner.
Lifetime saving = interest left on the current loan − interest on the new loan − costs. Moving Islamic home finance to another bank (a buyout) works the same way with profit rates; include the early-settlement fee in the costs.
Worked examples
- 700,000, 300 months, 6% → 4.5%, costs 15,000: saving 619.28, break-even 25 months
- Same, new term 240 months: M = 4,428.55, lifetime saving 275,181.99
Frequently asked questions
What costs should I include?
Arrangement or processing fees, valuation, registration of the new mortgage, and the early-settlement charge on the old loan. In the UAE the Central Bank caps the mortgage early-settlement fee at 1% of the outstanding balance or AED 10,000, whichever is less.
Why can the total interest go up with a lower rate?
If the new term is longer than the months left, you pay interest for longer. Keep the term the same or shorter to be sure of a saving.
Should I use the saving to pay extra?
Keeping your old payment after refinancing clears the loan sooner; see the mortgage payoff calculator.
When is refinancing worth it?
When you plan to keep the loan past the break-even point, which is the refinancing cost divided by the monthly saving.
Should I keep the same term when refinancing?
Keeping your remaining term or shortening it saves the most interest. Extending it lowers the payment but can wipe out the saving.
Can I refinance an Islamic home finance?
Often, yes, usually as a transfer to another bank. The same comparison works using profit rates, but include any early settlement fee in the costs.