Financing · Refinancing
Breaking your mortgage lock in early: when the math still works
By Winfred Quek, Associate Marketing Consultant · CEA R073319H · Crestbrick Pte Ltd (L31010886H) · Published 13 July 2026
Facts verified: 13 July 2026 · Illustrative figures below are hypothetical for the calculation method only, not quoted rates · Sources attributed below
Every time SORA moves meaningfully, I get a wave of the same question from clients still inside a lock in period on their current loan: should I just eat the penalty and refinance? The honest answer is that it depends entirely on arithmetic you can actually run yourself, and most people never do the full version of it. They compare the penalty against the new rate and stop there. That is an incomplete comparison, and it is why some borrowers who should refinance do not, and some who should not, do.
What you are actually comparing
A proper break even calculation has exactly two sides. On one side sits the total cost of exiting your current loan: the early redemption penalty charged by your existing bank, any clawback of legal fee subsidies or cash rebates your current loan came with, and the legal conveyancing and valuation fees for setting up the new loan. On the other side sits the total interest you expect to save by moving to the lower rate, calculated over the number of years you realistically intend to hold the new loan, not the full remaining tenure of the mortgage, since most borrowers refinance again before a loan runs its full course anyway.
If the savings side is larger than the cost side within your realistic holding horizon, breaking early is the financially sound choice. If the cost side is larger, it is not, no matter how attractive the new headline rate looks in isolation.
An illustrative walkthrough
To make the mechanics concrete, here is a worked example using round, hypothetical numbers purely to demonstrate the calculation method. These figures are illustrative only and not a quote from any specific bank or loan product.
Illustrative scenario
Suppose your outstanding loan balance is $600,000, your current contracted rate sits meaningfully above the prevailing market benchmark, and a refinance offer would bring your rate down by roughly one percentage point. Your bank's early redemption penalty is, hypothetically, 1.5 percent of the outstanding balance, and your original loan carried a legal subsidy that would require repayment of a modest fixed amount if you exit before a minimum holding period. Refinancing to the new bank also involves its own legal and valuation costs, which some banks subsidise and others do not.
- Exit cost side: redemption penalty (1.5% of $600,000) + subsidy clawback + new loan legal and valuation fees.
- Savings side: roughly one percentage point of interest on $600,000 per year, multiplied by however many years you intend to hold the new loan before your next refinance or sale.
In this illustration, a one percentage point rate gap on a $600,000 loan produces a meaningful annual interest saving, one that can clear a one time penalty plus fees within the first year or two of holding the new loan, after which every additional year you hold it is close to pure savings. The exact numbers on your own loan will differ, sometimes substantially, which is exactly why this needs to be run on your real figures rather than assumed from an example.
The clawback most borrowers forget
Why the penalty structure usually declines over the lock in period
Most lock in penalty structures are not flat across the entire period. Banks typically price the penalty higher in the earliest years of the lock in, when they have recovered the least of their acquisition cost, and step it down as you approach the end of the lock in, when less of that cost remains outstanding. This means the same rate gap that does not clear the break even threshold in year one of a lock in can clear it comfortably by year two or three, simply because the penalty itself has shrunk. If your break even calculation is close but not quite favourable today, it is worth checking your bank's penalty schedule for how it steps down, since waiting even a few months can shift the answer.
Where borrowers get the comparison wrong
- Comparing rate alone, not total cost. A rate 0.5 percentage points lower sounds attractive in isolation but may not clear a penalty and clawback combined within a realistic holding horizon.
- Assuming the full remaining tenure as the savings window. Most borrowers do not hold a single loan to full maturity. Use a realistic horizon, often three to five years, rather than the theoretical full term.
- Forgetting the clawback clause entirely. This is the single most common omission and can turn an apparently favourable refinance into a marginal or negative one.
- Ignoring where you sit in the lock in schedule. The same decision can flip from unfavourable to favourable simply by waiting for the penalty to step down, if your bank's structure works that way.
- Not asking the new bank for their actual legal and valuation fee position. Some banks subsidise these costs for refinancing customers, which changes the total exit cost meaningfully.
Frequently asked questions
What is a mortgage lock in period?
A lock in period is a set number of years, defined in your loan contract, during which refinancing away from your current bank, or making certain prepayments beyond an allowed amount, triggers an early redemption penalty. It exists so the bank recovers some of the cost of acquiring your loan if you leave before the bank has earned that back through interest. The full mechanics, typical duration and what counts as a trigger are covered in the dedicated lock in period guide linked below.
How is the early redemption penalty usually calculated?
Penalties are typically calculated as a percentage of the outstanding loan amount being redeemed, with the exact percentage and structure varying by bank and by product. Some banks apply a flat percentage across the whole lock in period, others apply a higher percentage in the earlier years that steps down as you approach the end of the lock in. The precise figure is stated in your original loan offer letter and should be confirmed directly with your bank rather than assumed.
What is a break even calculation for breaking lock in early?
It is a comparison between the total cost of exiting your current loan early, the redemption penalty plus any subsidy clawback and refinancing fees, against the total interest you would save by moving to a lower rate over the period you actually intend to hold the new loan. If the interest saved exceeds the total exit cost within your realistic holding horizon, breaking early can be financially worthwhile. If the exit cost exceeds the savings, it is not, regardless of how attractive the new rate looks on its own.
Are there other costs besides the penalty when refinancing?
Yes. Refinancing typically involves legal fees and a fresh property valuation, and if your original loan came with a legal fee subsidy or cash rebate carrying a minimum holding period condition, breaking early can trigger a clawback requiring you to repay that subsidy. All of these costs need to be added to the penalty when running the break even calculation, not treated as separate afterthoughts.
Considering an early refinance?
The break even math needs your actual penalty schedule, clawback clause and holding horizon, not a rule of thumb. A Property Portfolio Analysis runs the full comparison on your real numbers.
Book a free analysis callWinfred Quek is Associate Marketing Consultant at Crestbrick Pte Ltd, advising Singapore upgraders, investors and families. CEA R073319H. The information on this page is general and does not constitute financial or mortgage advice. The worked example uses illustrative, hypothetical figures for calculation method only and is not a quote from any bank. Penalty structures, subsidy clawback terms and fees vary by bank and loan product; verify your own loan's actual terms before deciding to refinance.