Partial Prepayment vs Lump Sum: Which Saves More on Your Singapore Mortgage?

Executive Summary

When it comes to paying down your Singapore home loan faster, the choice between partial prepayment and lump sum payments can significantly impact your total interest costs and financial flexibility. Both strategies can save you money, but which one is right for you depends on your financial situation, loan type, and long-term goals. This comprehensive guide breaks down the mechanics of each approach, compares real-world savings scenarios, and provides actionable strategies to help you make the best decision for your circumstances.

At Homejourney, we believe in empowering Singapore property buyers and investors with transparent, verified information to make confident financial decisions. This guide synthesizes the latest regulations, bank policies, and expert insights to help you understand exactly how much you can save—and what pitfalls to avoid.

Table of Contents

• Understanding Mortgage Prepayment in Singapore
• Partial Prepayment vs Lump Sum: Key Differences
• Real Savings Comparison: Numbers That Matter
• Prepayment Penalties and Lock-In Periods
• HDB Loans vs Bank Loans: Different Rules Apply
• Choosing Your Prepayment Strategy
• Advanced Optimization Tactics
• Common Mistakes to Avoid
• Your Action Plan
• Frequently Asked Questions

Understanding Mortgage Prepayment in Singapore

Mortgage prepayment simply means paying more than your required monthly installment to reduce your outstanding loan balance faster. Instead of following the standard repayment schedule, you inject extra cash into your loan—either in small, regular increments or in one large lump sum. This straightforward concept has profound implications for your long-term finances.

When you prepay your mortgage, the extra amount goes directly toward reducing your principal balance. Since interest is calculated on the outstanding principal, a lower balance means significantly less interest accumulates over the remaining loan tenure. For a typical S$800,000 mortgage over 25 years, even modest prepayments can save tens of thousands in interest.

However, prepayment isn't always the optimal financial strategy. Before committing extra funds to your mortgage, you should understand the full picture: your current interest rate, available investment returns, prepayment penalties, and your personal financial goals. Homejourney's approach prioritizes user safety by ensuring you have all the information needed to make this decision confidently.

Partial Prepayment vs Lump Sum: Key Differences

What is Partial Prepayment?

Partial prepayment involves making regular additional payments toward your mortgage principal, separate from your monthly installments. These can be made monthly, quarterly, or at any frequency that suits your cash flow. The key advantage is flexibility—you can adjust the amount based on your financial situation without committing a large lump sum upfront.

For HDB loans, partial prepayment allows you to choose between two outcomes: reducing your monthly installment (keeping the same tenure) or maintaining your monthly payment while shortening the loan tenure. This flexibility is a significant advantage for HDB borrowers. Bank loans typically only offer the option to reduce your monthly installment.

What is Lump Sum Payment?

A lump sum payment is a single, substantial payment toward your mortgage principal, typically made when you have a windfall—such as a bonus, inheritance, or property sale proceeds. This one-time injection reduces your principal significantly, which compounds into substantial interest savings over the remaining loan tenure.

Lump sum payments are particularly powerful because they immediately reduce the base on which interest is calculated for the entire remaining tenure. A S$50,000 lump sum payment made early in your loan can save more interest than S$50,000 in partial prepayments spread over several years, due to the power of compound interest.

Side-by-Side Comparison Table

Real Savings Comparison: Numbers That Matter

Scenario 1: The Conservative Partial Prepayment Approach

Let's examine a realistic scenario for many Singapore homebuyers. You've just purchased a property with an outstanding mortgage of S$800,000 over 25 years at a floating rate of 3.5% per annum. Your monthly installment is approximately S$3,800.

With partial prepayment, you decide to contribute an extra S$500 monthly toward your principal. Over one year, that's S$6,000 in additional payments. Here's what happens:

• Your outstanding principal reduces from S$800,000 to approximately S$794,200 after 12 months
• The interest you avoid paying over the remaining 24 years is roughly S$18,500
• Your monthly installment can optionally reduce by approximately S$25–S$30
• Total interest savings over the full loan tenure: approximately S$180,000–S$220,000 (depending on rate movements)

The power of this approach lies in consistency. By committing just S$500 monthly—less than 15% of your standard payment—you achieve substantial long-term savings without straining your monthly budget.

Scenario 2: The Strategic Lump Sum Approach

Now consider a different situation. You receive a S$50,000 bonus and decide to make a one-time lump sum payment toward the same S$800,000 mortgage at 3.5% over 25 years.

• Your outstanding principal immediately reduces from S$800,000 to S$750,000
• The interest you avoid paying over the remaining 25 years is approximately S$95,000–S$110,000
• If you maintain your monthly payment, your loan tenure reduces from 25 years to approximately 22.5 years
• Total interest savings: approximately S$95,000–S$110,000

A single S$50,000 payment delivers nearly as much total interest savings as S$500 monthly payments for four years. This demonstrates the power of early, substantial principal reduction.

Scenario 3: Combined Strategy

The most powerful approach combines both strategies. You make regular partial prepayments of S$300 monthly while committing to make a S$30,000 lump sum payment when you receive your annual bonus.

• Annual partial prepayments: S$3,600
• Annual lump sum: S$30,000
• Total annual extra payment: S$33,600
• Over 5 years, you've paid an additional S$168,000 toward principal
• Interest savings over the full loan tenure: approximately S$380,000–S$450,000
• Loan tenure reduction: approximately 7–8 years (from 25 years to 17–18 years)

This combined approach balances the consistency of partial prepayment with the power of strategic lump sum payments, creating a comprehensive debt reduction strategy.

Interest Rate Impact on Savings

Your actual savings depend heavily on your mortgage interest rate. Higher rates amplify the benefit of prepayment, while lower rates reduce it. For example:

• At 2.5% interest rate: S$50,000 lump sum saves approximately S$65,000 in interest
• At 3.5% interest rate: S$50,000 lump sum saves approximately S$95,000 in interest
• At 4.5% interest rate: S$50,000 lump sum saves approximately S$130,000 in interest

This is why tracking interest rate movements matters. When rates are higher, prepayment becomes even more valuable. Homejourney's real-time SORA tracking helps you understand current rate environments and time your prepayment decisions strategically.

Prepayment Penalties and Lock-In Periods

Understanding Lock-In Periods

Most bank loans in Singapore include a lock-in period (also called a prepayment period) typically ranging from 2 to 5 years. During this period, banks restrict your ability to prepay or refinance without incurring penalties. This protects the bank's profit margin on the loan.

The lock-in period is one of the most critical factors determining whether prepayment makes financial sense. Making a prepayment during the lock-in period often triggers penalties that can eliminate or significantly reduce your interest savings.

Prepayment Penalty Structure

Banks typically charge penalties under these circumstances:

• Full early settlement during lock-in period: Usually 1–3% of the outstanding loan amount, or a fixed amount like S$2,000–S$5,000, whichever is higher
• Partial prepayment during lock-in period: Some banks waive penalties for small amounts (under S$5,000–S$10,000), while others apply penalties regardless of amount
• Prepayment that reduces outstanding balance below a minimum threshold: Some banks penalize if your remaining balance falls below a specified amount (e.g., S$50,000)
• Prepayment without advance notice: Additional penalties if you don't notify the bank in advance

Critical Question: Is the Penalty Worth It?

Before making any prepayment, calculate whether the penalty exceeds your interest savings. Here's the framework:

Interest Savings from Prepayment – Prepayment Penalty = Net Benefit

Example: You want to prepay S$50,000 on a bank loan during the lock-in period. The bank charges a 1.5% early settlement penalty (S$750). Your projected interest savings from this prepayment is S$8,500. Your net benefit is S$8,500 – S$750 = S$7,750. The prepayment still makes sense.

However, if the penalty is S$5,000 and your interest savings is only S$6,000, your net benefit is just S$1,000—potentially not worth the hassle. This is where professional guidance becomes valuable. Homejourney's mortgage brokers can help you evaluate whether prepayment makes financial sense given your specific loan terms.

Bank-Specific Prepayment Rules (2026)

Note: These are typical ranges as of January 2026. Specific terms vary by loan package and current promotions. Always verify with your bank or mortgage broker before committing to prepayment.

HDB Loans vs Bank Loans: Different Rules Apply

The HDB Loan Advantage: No Prepayment Penalties

One of the most significant advantages of HDB loans is the complete absence of prepayment penalties. You can prepay your HDB housing loan at any time, in any amount (subject to minimum amounts), without incurring penalties. This fundamentally changes the prepayment calculus for HDB borrowers.

For HDB loans, the decision to prepay becomes purely about financial optimization—not penalty avoidance. You don't need to wait for a lock-in period to expire, and you don't need to worry about whether savings exceed penalties. This simplicity is a major advantage.

HDB Prepayment Minimums and Options

HDB has tiered minimum prepayment amounts based on when your loan commenced:

• Loans commenced before 1 April 2012: Minimum prepayment of S$500
• Loans commenced on or after 1 April 2012: Minimum prepayment of S$5,000, in multiples of S$1,000

Additionally, HDB borrowers have a unique advantage: you can choose how your prepayment is applied. You can either:

• Reduce monthly installments: Keep the same loan tenure but pay less each month
• Shorten loan tenure: Maintain the same monthly payment but finish the loan years earlier

This flexibility is powerful. Shortening tenure is often the superior choice because it reduces the total interest paid significantly. For example, reducing a 25-year HDB loan to 20 years through prepayment can save S$100,000+ in interest, depending on your interest rate.

Bank Loans: Penalties and Restrictions

Bank loans operate under stricter prepayment conditions. Key differences from HDB loans:

• Lock-in periods: Typically 2–5 years during which prepayment triggers penalties
• Prepayment penalties: Usually 1–3% of the outstanding loan amount, or a fixed amount
• Minimum prepayment amounts: Generally S$5,000–S$10,000, depending on the bank
• Limited flexibility: Bank loans typically only allow you to reduce monthly payments; you cannot choose to shorten tenure while maintaining payments
• Minimum balance restrictions: Some banks penalize if prepayment reduces your outstanding balance below a threshold

However, bank loans often offer lower interest rates than HDB loans, particularly if you negotiate well or have a strong financial profile. The trade-off between lower rates and prepayment flexibility is worth evaluating.

HDB Interest Rate Advantage

HDB loans are pegged at the CPF Ordinary Account (OA) interest rate plus 0.1%. As of January 2026, this typically results in rates around 2.5–2.6%, significantly lower than most bank loans. This lower rate means:

• Lower monthly payments
• Lower total interest paid over the loan tenure
• Potentially less benefit from prepayment (since you're already paying less interest)

This is a critical consideration. If you have the choice between an HDB loan and a bank loan, the HDB's lower rate and penalty-free prepayment often outweigh the bank's flexibility.

Choosing Your Prepayment Strategy

Step 1: Assess Your Financial Foundation

Before committing to any prepayment strategy, ensure your financial foundation is solid:

• Emergency fund: Maintain 6–12 months of living expenses in liquid savings. Financial advisors typically recommend at least 6 months as a minimum buffer
• High-interest debt: Pay off credit card debt and other high-interest obligations first. Prepaying a 3.5% mortgage while carrying 18% credit card debt is financially illogical
• Insurance coverage: Ensure you have adequate life insurance (Mortgage Reducing Term Assurance for bank loans, or Home Protection Scheme for HDB properties) and health insurance
• Investment opportunities: Consider whether the mortgage rate exceeds potential investment returns. If you can reliably earn 5% in investments while your mortgage costs 3.5%, investing may be superior to prepayment

Only after addressing these foundational elements should you consider prepayment strategies.

Step 2: Compare Your Mortgage Rate Against Alternatives

The decision to prepay hinges on one critical comparison: What return could you earn on the same money elsewhere?

If your mortgage rate is 3.5% and you can reliably earn 4.5% in fixed deposits or bonds, mathematically you should invest rather than prepay. However, this analysis must account for:

• Your risk tolerance (mortgages are risk-free; investments carry risk)
• Your psychological comfort (some people sleep better with lower debt)
• Tax implications (investment returns may be taxable; mortgage interest is not deductible in Singapore)
• Liquidity needs (prepaid mortgage funds are locked away; investments may be more accessible)

Many Singapore property owners find that a hybrid approach—splitting extra funds between prepayment and investments—provides optimal balance.

Step 3: Evaluate Your Loan Type and Terms

Your loan type dramatically affects which strategy makes sense:

If you have an HDB loan: Prepayment is almost always beneficial because there are no penalties and HDB rates are already low. The question becomes: how aggressively should you prepay? Consider tenure reduction over payment reduction to maximize interest savings.

If you have a bank loan within the lock-in period: Proceed cautiously. Calculate whether interest savings exceed penalties. In most cases, waiting until the lock-in period expires is prudent.

If you have a bank loan past the lock-in period: Prepayment becomes attractive. Compare the mortgage rate against alternative investment returns and make your decision accordingly.

If you have a fixed-rate bank loan: Prepayment is particularly valuable because you lock in the benefit of the fixed rate. If rates rise after your prepayment, you benefit even more.

Step 4: Choose Your Prepayment Frequency

Three primary strategies exist:

Strategy A: Regular Partial Prepayment

Commit to a fixed monthly or quarterly amount (e.g., S$500 monthly). This works well if you have stable income and want to automate the process. Advantages: consistency, behavioral discipline, manageable cash flow impact. Disadvantages: slower total payoff, less dramatic interest savings in early years.

Strategy B: Opportunistic Lump Sum Prepayment

Wait for windfalls (bonuses, inheritance, property sale proceeds) and deploy them strategically. This works well if your income is variable or you prefer to maintain maximum flexibility. Advantages: large principal reductions, powerful interest savings, no strain on regular budget. Disadvantages: requires discipline to actually prepay when windfalls arrive, timing uncertainty.

Strategy C: Hybrid Approach (Recommended)

Combine modest regular prepayments (e.g., S$300 monthly) with strategic lump sum payments when possible. This balances consistency with opportunistic power. Most financial advisors recommend this approach for its flexibility and psychological benefits.

Step 5: Consider CPF Implications

For HDB borrowers, CPF strategy significantly affects prepayment decisions. Key considerations:

• CPF OA interest rate: As of 2026, CPF OA earns approximately 2.5% interest. HDB loans are pegged at CPF OA + 0.1%, so roughly 2.6%
• CPF withdrawal strategy: If you prepay your HDB loan, you're using cash that could have remained invested in CPF earning interest. However, CPF funds are restricted-use, so this is often a theoretical advantage only
• Retirement implications: Ensure prepayment doesn't compromise your retirement savings goals. Don't sacrifice long-term retirement security for mortgage payoff

For many HDB borrowers, the optimal strategy is moderate prepayment (not aggressive) while maintaining adequate CPF balances for retirement and healthcare needs.

Advanced Optimization Tactics

Tactic 1: Refinancing Before Prepayment

If you're considering significant prepayment on a bank loan, first evaluate refinancing. If rates have dropped since you originated your loan, refinancing to a lower rate might be superior to prepayment.

Example: You have a S$600,000 loan at 3.8% with 15 years remaining. Rates have dropped to 3.2%. Refinancing costs S$3,000 but saves you S$0.6% on the outstanding balance. Over 15 years, this saves approximately S$45,000—far more than most prepayment strategies would deliver. After refinancing, you could then consider prepayment on the new, lower-rate loan.

Homejourney's bank rates comparison tool helps you identify refinancing opportunities by showing current rates from all major banks. Compare your current rate against market rates to determine if refinancing makes sense.

Tactic 2: Tenure Reduction (HDB Advantage)

HDB borrowers should strongly consider applying prepayments to tenure reduction rather than payment reduction. Here's why:

Scenario: You have a S$400,000 HDB loan over 25 years at 2.6%. Your monthly payment is S$1,900. You want to prepay S$50,000.

Option A: Reduce Monthly Payment

• New monthly payment: approximately S$1,850 (S$50 savings per month)
• Total interest savings: approximately S$18,000

Option B: Reduce Loan Tenure

• Monthly payment remains S$1,900
• Loan tenure reduces from 25 years to approximately 22 years
• Total interest savings: approximately S$42,000

Tenure reduction delivers 2.3x more interest savings than payment reduction. For HDB borrowers, this should be the default choice unless cash flow is genuinely constrained.

Tactic 3: Strategic Timing with SORA Movements

For borrowers with SORA-linked loans (3M SORA or 6M SORA), prepayment timing matters. When SORA rates are high, prepayment delivers maximum benefit. When rates are expected to fall, prepayment is less urgent.

Track SORA movements through Homejourney's real-time rate tracking. If SORA is at elevated levels (e.g., 3.8%+), this is an optimal time to prepay. If SORA is expected to decline, you might defer prepayment and invest the funds instead.

Tactic 4: Bonus and Variable Income Strategy

If you receive bonuses, commissions, or variable income, create a systematic strategy to deploy these funds:

• Tier 1 (Emergency Fund): First, replenish any emergency fund drawdowns
• Tier 2 (High-Interest Debt): Pay down credit cards or other high-interest obligations
• Tier 3 (Prepayment): Direct a fixed percentage (e.g., 50%) toward mortgage prepayment
• Tier 4 (Investments): Invest remaining funds in diversified portfolios

This systematic approach ensures prepayment happens consistently without requiring willpower each bonus cycle.

Tactic 5: CPF Withdrawal Optimization

For HDB borrowers using CPF to service the mortgage, understand that CPF withdrawal limits affect prepayment capacity. Current limits allow withdrawals for:

• Monthly mortgage payments (up to the actual payment)
• Lump sum prepayment (subject to available CPF OA balance)