The conventional wisdom is that refinancing always saves you money. It does not. Refinancing is a transaction with hard costs — legal fees, valuation fees, stamp duty, and potentially a five-figure lock-in penalty. If the numbers do not clear a break-even threshold within your holding period, refinancing is a net loss disguised as a lower interest rate.
This guide covers every cost line, the exact break-even formula, cash-out refinancing for property investors, and a worked example comparing a 4.75% loan to a 4.25% refinance over 25 years. By the end you will know — in ringgit terms — whether refinancing makes sense for your specific situation.
Why Refinance a Home Loan in Malaysia?
There are three legitimate reasons to refinance. Each has a different financial logic.
1. Lower interest rate. This is the most common motivation. If market rates have dropped since you took your original loan — or if your credit profile has improved — a new loan at a lower rate reduces your monthly payment and total interest paid over the loan tenure.
2. Cash-out for your next property. If your property has appreciated significantly, refinancing lets you unlock that equity without selling. You take a new, larger loan based on the current market value, pay off the old loan, and pocket the difference as cash for a down payment on your next investment.
3. Switch financing type. Some borrowers want to switch from conventional to Islamic financing (or vice versa). A Muslim borrower who originally took a conventional loan might want to switch to a Tawarruq or Musharakah Mutanaqisah structure for Shariah compliance. Conversely, some borrowers switch from Islamic to conventional to access a lower effective rate. Either way, the process is identical to a standard refinance — you are replacing one facility with another.
For a deeper comparison of conventional versus Islamic financing structures, see our Islamic vs Conventional Property Financing guide.
The Break-Even Formula: Will Refinancing Actually Save You?
Before you approach a single bank, run this calculation:
Break-Even Period (months) = Total Refinancing Costs / Monthly Savings
If your break-even period exceeds your remaining holding period, do not refinance. It is that simple.
Example: Your total refinancing costs are RM 15,000. The new loan saves you RM 300/month compared to your current loan. Break-even is 50 months — just over four years. If you plan to sell or refinance again within four years, this refinance destroys value.
The mistake most borrowers make is looking only at the monthly savings and ignoring the upfront cost. A banker will show you a RM 300/month saving and call it "RM 3,600/year saved." They will not mention the RM 15,000 you spent to get there.
Key takeaway: A lower rate does not automatically mean a profitable refinance. The break-even period is the only number that matters. Calculate it before you do anything else.
Total Refinancing Costs: Line-by-Line Breakdown
Here is what you will actually pay when refinancing a home loan in Malaysia:
| Cost Item | Typical Amount | Notes |
|---|---|---|
| Legal fees (new loan agreement) | 0.5% – 1.25% of new loan | Based on Solicitors' Remuneration Order 2023. Tiered: 1.25% on first RM500K, 1.0% above that. Plus 6% SST. |
| Legal fees (discharge of existing loan) | RM 1,000 – RM 2,500 | Paid to the existing bank's panel lawyer to release the charge on your property. |
| Valuation fee | RM 300 – RM 1,500 | Depends on property value. Banks may waive this as a promotional incentive. |
| Stamp duty on new loan agreement | 0.5% of new loan amount | Fixed rate under the Stamp Act 1949. No exemptions for refinancing. |
| MRTA / MRTT premium | Varies | Mortgage Reducing Term Assurance (conventional) or Takaful (Islamic). Some banks require it; others make it optional. Can add RM 5,000 – RM 30,000 depending on loan size and your age. |
| Lock-in penalty (if applicable) | 2% – 3% of outstanding balance | Only applies if you refinance within the lock-in period. See section below. |
| Miscellaneous disbursements | RM 500 – RM 1,500 | Registration fees, bankruptcy search, land office fees, administrative charges. |
For a detailed breakdown of the legal fee calculation, see our Legal Fees When Buying Property guide. The fee schedule is identical for refinancing loan agreements.
Sample total cost for a RM 450,000 refinance (no lock-in penalty):
| Item | Amount (RM) |
|---|---|
| Legal fees (new loan) | 5,625 |
| SST on legal fees (6%) | 338 |
| Legal fees (discharge) | 1,500 |
| Stamp duty (0.5%) | 2,250 |
| Valuation fee | 500 |
| Disbursements | 800 |
| Total | 11,013 |
Without MRTA and without a lock-in penalty, you are looking at roughly RM 11,000 to refinance a RM 450,000 loan. Add a lock-in penalty of 2% on RM 450,000 (RM 9,000) and the total jumps to RM 20,013.
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Lock-In Period: The Hidden Gatekeeper
Most Malaysian home loans come with a lock-in period of 3 to 5 years. During this period, if you fully settle the loan (including via refinancing), the bank charges a penalty — typically 2% to 3% of the outstanding loan balance.
On a RM 500,000 outstanding balance, a 3% penalty is RM 15,000. That single charge can wipe out years of interest savings from your new, lower rate.
| Lock-In Period | Typical Penalty | On RM 400K Outstanding | On RM 600K Outstanding |
|---|---|---|---|
| 3 years | 2% – 3% | RM 8,000 – RM 12,000 | RM 12,000 – RM 18,000 |
| 5 years | 2% – 3% | RM 8,000 – RM 12,000 | RM 12,000 – RM 18,000 |
| After lock-in expires | 0% | RM 0 | RM 0 |
Strategy: Always wait until your lock-in period expires before refinancing — unless the rate difference is so large that the monthly savings still clear the break-even hurdle even with the penalty included. In the current rate environment (OPR at 2.75%, effective rates around 4.20%-4.40%), a 0.50% rate reduction rarely justifies eating a lock-in penalty.
For more on how OPR movements affect your mortgage rate, see our OPR & Property Mortgage guide.
Cash-Out Refinancing: Unlocking Equity for Your Next Property
This is where refinancing becomes a wealth-building tool rather than just a cost-saving exercise.
The mechanism: When your property appreciates in value, the bank will lend you a larger amount based on the new (higher) valuation. You use part of that new loan to pay off the old loan, and keep the difference as cash.
Example:
| Item | Amount |
|---|---|
| Original purchase price | RM 500,000 |
| Current market valuation | RM 650,000 |
| Maximum new loan (90% of valuation) | RM 585,000 |
| Outstanding balance on current loan | RM 400,000 |
| Cash extracted | RM 185,000 |
That RM 185,000 — minus refinancing costs of roughly RM 15,000-20,000 — gives you RM 165,000-170,000. That is enough for a 10% down payment on a property worth up to RM 1.7 million, or full upfront costs (down payment + legal + stamp duty) on a property around RM 700,000-800,000.
Important caveats for cash-out refinancing:
-
The 90% LTV limit applies only to your first two residential properties. For your third property onwards, BNM's maximum LTV is 70%. Factor this into your portfolio strategy.
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Your DSR must support the larger loan. Even though your property appreciated, the bank still needs to verify that your income can service the new, higher monthly payment. If you extract RM 185,000 but your DSR is already stretched, the bank will cap your new loan below the theoretical maximum. Use our Home Loan Calculator to model the new monthly payment before you apply.
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Rental income helps. If the property is tenanted, banks will count 70%-80% of verified rental income toward your DSR calculation. Have your tenancy agreement ready.
Step-by-Step Refinancing Process
Here is the typical timeline from start to finish. Budget 8 to 12 weeks for the full process.
Step 1: Rate shopping and application (Week 1-2)
Apply to 2-3 banks simultaneously. You need: IC copy, latest 3-6 months payslips, latest income tax return (BE form), latest EPF statement, current loan statements, and the original SPA. Each bank will pull your CCRIS and CTOS records.
Compare the effective rate, not just the advertised rate. A bank offering BR + 1.50% with a 3.87% base rate gives an effective rate of 5.37%. Another bank offering BR + 0.75% with a 3.95% base rate gives 4.70%. The second bank wins despite the higher base rate. For a full comparison methodology, see our Best Home Loan Comparison.
Step 2: Valuation (Week 2-3)
The bank appoints a valuer to assess your property's current market value. This determines your maximum loan amount. The valuation report typically takes 5-10 working days.
Step 3: Letter of Offer (Week 3-5)
If approved, the bank issues a Letter of Offer. Read it carefully — check the effective rate, lock-in period, penalty terms, and any conditions. Sign and return the accepted offer.
Step 4: Appoint lawyers and prepare loan documents (Week 4-7)
The new bank's panel lawyer prepares the new loan/financing documentation. Simultaneously, the discharge process begins on your existing loan. Your current bank's lawyer prepares the discharge documents.
Step 5: Discharge of existing loan (Week 6-10)
This is usually the longest step. Your current bank needs to calculate the final settlement amount, prepare the discharge documentation, and release the original title and charge documents. Some banks take 4-6 weeks for this alone.
Step 6: Registration and disbursement (Week 8-12)
The new bank's lawyer registers the new charge at the land office, the new loan is disbursed to settle the old loan, and any cash-out amount is released to your account.
Worked Example: Should You Refinance?
Let us run the full numbers on a real scenario.
Current situation:
- Outstanding loan balance: RM 450,000
- Current rate: 4.75% (BR 3.75% + 1.00%)
- Remaining tenure: 25 years
- Monthly payment: RM 2,569
- Lock-in period: Expired (no penalty)
Refinance option:
- New loan amount: RM 450,000 (same amount, no cash-out)
- New rate: 4.25% (BR 3.85% + 0.40%)
- New tenure: 25 years
- New monthly payment: RM 2,432
Monthly saving: RM 137
Total refinancing costs:
| Item | Amount (RM) |
|---|---|
| Legal fees (new loan) + SST | 5,963 |
| Legal fees (discharge) | 1,500 |
| Stamp duty (0.5% of RM450K) | 2,250 |
| Valuation | 500 |
| Disbursements | 800 |
| Total | 11,013 |
Break-even period: RM 11,013 / RM 137 = 80 months (6 years 8 months)
If you plan to hold this property for at least 7 years, refinancing saves you money. Over the full 25-year tenure, the total interest saving is:
| Scenario | Total Interest Paid (RM) | Total Paid (RM) |
|---|---|---|
| Stay at 4.75% | 320,700 | 770,700 |
| Refinance to 4.25% | 279,600 | 729,600 |
| Gross saving | 41,100 | |
| Minus refinancing costs | (11,013) | |
| Net saving | 30,087 |
Now consider a larger rate differential. If you are currently at 5.00% and refinance to 4.00% on the same RM 450,000 over 25 years:
| Scenario | Monthly Payment (RM) | Total Interest (RM) | Total Paid (RM) |
|---|---|---|---|
| Stay at 5.00% | 2,630 | 339,000 | 789,000 |
| Refinance to 4.00% | 2,372 | 261,600 | 711,600 |
| Gross saving | 258/mo | 77,400 | |
| Minus costs | (11,013) | ||
| Net saving | 66,387 |
Break-even: RM 11,013 / RM 258 = 43 months (3 years 7 months). Much more compelling.
Key takeaway: A 0.50% rate reduction on a RM 450,000 loan saves roughly RM 137/month — break-even in 80 months. A 1.00% reduction saves RM 258/month — break-even in 43 months. The rate gap needs to be large enough to justify the fixed costs within your holding period.
When NOT to Refinance
Do not refinance if:
- You are within the lock-in period and the penalty pushes your break-even beyond your holding timeline.
- The rate difference is less than 0.50% on a loan under RM 500,000 — the monthly savings will be too small to recoup costs within a reasonable timeframe.
- You plan to sell within 3-4 years. Between refinancing costs and the potential RPGT on disposal, you may be better off holding your current loan and selling without the added friction. Check your RPGT exposure first.
- Your credit profile has deteriorated. If your CCRIS shows late payments or your DSR has worsened since your original loan, you may not qualify for a better rate — and the hard inquiry on your credit file is a negative signal to future lenders.
- You are extending your tenure significantly. Some borrowers refinance and restart at 35 years to get a lower monthly payment. This reduces cashflow pressure but increases total interest paid dramatically. Run the total cost, not just the monthly cost.
Refinancing for Investment Property Owners
If you own multiple properties, refinancing becomes part of a broader portfolio strategy. Here are the key considerations:
LTV limits by property count:
| Property Number | Maximum LTV |
|---|---|
| 1st property | 90% |
| 2nd property | 90% |
| 3rd property onwards | 70% |
This means cash-out refinancing is most powerful on your first two properties, where you can leverage up to 90% of the new valuation. On your third property, the 70% cap (imposed by BNM since November 2010) significantly limits how much equity you can extract.
Stamp duty on refinancing loan agreements:
The 0.5% stamp duty on the new loan agreement applies every time you refinance. There is no exemption for refinancing — unlike first-time buyer MOT exemptions (extended to 31 December 2027 under Budget 2026). On a RM 600,000 loan, that is RM 3,000 in stamp duty alone. For the full stamp duty picture, see our Stamp Duty Guide.
Timing your refinance with rate cycles:
The OPR was cut from 3.00% to 2.75% in July 2025, the first reduction since 2020. If you locked in a loan during the 2022-2023 rate hiking cycle at a higher spread, now may be a good time to refinance — especially if your lock-in period has expired. But do not refinance speculatively hoping rates will fall further. Lock in a rate that makes sense at today's numbers.
Checklist Before You Refinance
Use this as your pre-refinance decision framework:
- [ ] Lock-in period has expired (or penalty is factored into break-even calculation)
- [ ] Rate differential is at least 0.50% (preferably 0.75%+)
- [ ] Break-even period is shorter than your remaining holding period
- [ ] DSR supports the new (potentially larger) loan amount
- [ ] CCRIS record is clean — no late payments in the last 12 months
- [ ] All refinancing costs are accounted for (legal, stamp duty, valuation, MRTA, discharge)
- [ ] For cash-out: clear plan for how extracted equity will be deployed (down payment, renovation, debt consolidation)
Run the numbers on our Home Loan Calculator before approaching any bank. And model the impact on your property's cashflow using the Cashflow Calculator — a lower rate improves monthly cashflow, but the upfront refinancing costs reduce your overall return if you sell early.
Current Home Loan Rates Worth Considering (2026)
For the latest rate comparison across major Malaysian banks — including Maybank, CIMB, Public Bank, RHB, Hong Leong, and AmBank — see our Best Home Loan Malaysia Comparison guide, which we update quarterly. The 2026 Interest Rate overview covers the current OPR environment and where rates may be heading.
Refinancing is not about chasing the lowest headline rate. It is about whether the all-in cost of switching produces a net positive outcome within your specific holding period. Calculate the break-even. If the numbers work, proceed. If they do not, wait.