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

When you have extra cash, the decision to prepay your mortgage feels straightforward—pay more, save on interest, right? The reality is more nuanced. Whether you should make partial prepayments (regular extra payments) or wait for a lump sum payment (one large payment) depends on your loan type, interest rate, lock-in period, and overall financial situation. At Homejourney, we believe informed decisions create safer, more confident property transactions. This guide breaks down both strategies with real numbers so you can choose what actually saves you the most money.

Understanding the Two Prepayment Strategies

Partial prepayment means making regular extra payments toward your principal throughout the year—for example, paying an additional $500 or $1,000 monthly on top of your regular mortgage instalment. Lump sum payment means accumulating savings and making one large payment against your loan, typically when you receive a bonus, inheritance, or investment returns.

Both strategies reduce your outstanding principal and therefore reduce the total interest you pay over the life of your loan. However, the timing, frequency, and loan type create significant differences in actual savings and costs.

Real Savings Example: The Numbers Matter

Let's use a concrete example to show how prepayment works. Imagine you have a $500,000 home loan over 20 years at a 2.5% interest rate with a bank.

Your monthly instalment would be approximately $2,649. If you make a one-time $30,000 lump sum payment early in your loan tenure, your monthly instalment drops to $2,249—saving you about $160 per month. Over the remaining 20 years, this accumulates to approximately $38,400 in interest savings.

However, this calculation doesn't account for prepayment penalties, lock-in periods, or the opportunity cost of your money. This is where the strategy becomes critical.

HDB Loans vs Bank Loans: The Penalty Factor

If you have an HDB loan, prepayment is straightforward. HDB loans have no prepayment penalty and no lock-in period, regardless of whether you make partial or lump sum payments. This makes HDB loans significantly more flexible for borrowers who want to reduce their loan faster.

If you have a bank loan, penalties change everything. Most bank loans include a lock-in period (typically 1-3 years) during which prepayment penalties apply. These penalties are usually around 1.5% of your remaining loan amount. Some banks allow partial repayment of up to 30-50% of your outstanding loan during the lock-in period without penalty, but full prepayment or amounts exceeding this threshold trigger penalties.

Let's revisit our $500,000 loan example. If you're within the lock-in period and want to prepay $30,000, you might face a 1.5% penalty on your remaining balance. If your remaining balance is $480,000, that penalty could be $7,200—wiping out nearly 19% of your interest savings before you even start.

This is why timing matters enormously. Prepayment strategies that ignore lock-in periods can actually cost you money.

Partial Prepayment: The Advantage of Consistency

Partial prepayment works best when:

You have an HDB loan (no penalties)
You're past your bank loan's lock-in period
You have consistent monthly cash flow to spare
You want to reduce interest gradually over time
Your current mortgage rate is higher than potential investment returns

The advantage of partial prepayment is psychological and practical. By making regular $500-$1,000 extra payments, you're building a habit of accelerated repayment. You see your principal decrease monthly, which creates momentum. Additionally, most floating-rate bank loans allow partial prepayment of 30-50% of your outstanding loan during the lock-in period without penalty, giving you some flexibility even early in your loan.

For HDB borrowers, partial prepayment is particularly effective because there's zero penalty. You can prepay any amount, anytime, with no restrictions. The CPF Board requires prepayment amounts to be at least $5,000 and in multiples of $1,000, but beyond that, you have complete flexibility.

Lump Sum Payment: Maximizing Impact When Conditions Are Right

Lump sum payment works best when:

You've exited your bank loan's lock-in period
You receive a significant windfall (bonus, inheritance, investment returns)
You want to make a substantial dent in your principal at once
You have emergency savings secured separately
You're confident you won't need the cash for other purposes

A lump sum payment creates a more dramatic reduction in your outstanding balance, which means faster interest savings. If you pay $50,000 in one go versus spreading it across 50 months as partial prepayments, the mathematical result is the same—but the timing of your interest savings is front-loaded with lump sum payments.

However, lump sum payments require discipline. You need to actually accumulate the funds and resist the temptation to use them for other purposes. They also require strategic timing to avoid lock-in period penalties.

The Opportunity Cost Question: Is Prepayment Actually Your Best Move?

This is where many Singaporeans make costly mistakes. Before committing to either strategy, ask yourself: Could this money earn more elsewhere?

If your mortgage rate is 2.5% but you can invest in a fixed deposit earning 3.5% or a diversified portfolio averaging 5-6% annually, prepayment might not be your best move. Your money would work harder in investments than in mortgage reduction.

Similarly, if you have higher-interest debt (credit cards at 24-26%, personal loans at 5-8%), paying down those debts first makes far more financial sense than prepaying your mortgage.

At Homejourney, we encourage you to think holistically about your finances. Prepayment is powerful, but only when it's the highest-return use of your capital.

CPF Considerations: The Hidden Interest Factor

If you're using CPF funds for prepayment (particularly for HDB loans), remember that CPF Ordinary Account savings earn accrued interest. Currently, this rate is 2.5% per annum for most members, though it can reach 3.5% for members over 55 with certain conditions.

If your mortgage rate is 2.6% (HDB) and your CPF earns 2.5%, the interest rate difference is minimal—only 0.1%. In this scenario, prepaying with CPF provides modest savings. However, you lose the flexibility of having that CPF balance available for emergencies or future needs.

The CPF Board allows you to retain up to $20,000 in your Ordinary Account when taking an HDB loan, specifically to maintain this emergency buffer. Many financial advisors recommend keeping this amount intact and only prepaying with cash or amounts beyond this threshold.

Refinancing vs Prepayment: Sometimes the Better Strategy

Before deciding between partial and lump sum prepayment, consider whether refinancing might save you more money.

Using our earlier example: You have a $500,000 loan with Bank A at 2.5% and 20 years remaining. Your monthly instalment is $2,649. If you refinance to Bank B at 1.8% for the same 20-year tenure, your new monthly instalment drops to $2,482—saving $167 monthly, or approximately $40,080 over 20 years.

Compare this to prepaying $50,000 as a lump sum, which saves approximately $13,600 in net interest (after accounting for the $50,000 cash outlay). Refinancing provides superior savings without requiring you to part with capital.

Most banks subsidize refinancing costs (legal fees, valuation fees), making this option even more attractive. At Homejourney, you can compare current rates from DBS, OCBC, UOB, HSBC, Standard Chartered, and other major banks in one place to identify refinancing opportunities instantly.

The chart above shows recent SORA trends, which directly impact floating-rate mortgages. When rates are declining, refinancing to lock in lower rates becomes particularly attractive. Tracking these movements helps you time your refinancing decision perfectly.

Mortgage Insurance: A Reason to Reconsider Aggressive Prepayment

If you're covered under mortgage insurance like Mortgage Reducing Term Assurance (MRTA) for bank loans or Home Protection Scheme (HPS) for HDB properties, your outstanding home loan will be paid off automatically in cases of death, terminal illness, or permanent disability.

This means if you aggressively prepay your mortgage and something happens to you, your family loses the benefit of that insurance protection. The insurance only covers the remaining loan balance, not the amount you've already paid down. Consider maintaining adequate insurance coverage before prioritizing aggressive prepayment.

Frequently Asked Questions About Prepayment Strategies

Q1: Should I make partial prepayments or wait for a lump sum?

A: If you have an HDB loan, the answer is simple—make partial prepayments whenever you can, as there are no penalties and you'll reduce interest continuously. If you have a bank loan still in the lock-in period, wait until you exit the lock-in period to make significant prepayments, or confirm your bank allows partial prepayment up to 30-50% without penalty. Once past the lock-in period, lump sum payments create more dramatic interest savings, but partial prepayments provide psychological benefits and consistent progress.

Q2: What's the minimum amount I can prepay?

A: For HDB loans, the CPF Board requires prepayment amounts to be at least $5,000 and in multiples of $1,000. For bank loans, requirements vary by bank, but most allow prepayments of $1,000 or higher. Check your specific loan agreement or contact your bank directly.

Q3: Will prepayment penalties wipe out my savings?

A: Potentially, yes. If your bank charges a 1.5% penalty on a large prepayment and your remaining balance is $400,000, the penalty alone is $6,000. If your interest savings from that prepayment are only $5,000, you've actually lost money. Always calculate the penalty cost against projected interest savings before prepaying during the lock-in period.

Q4: Is it better to prepay my mortgage or invest the money?

A: This depends on investment returns available to you versus your mortgage rate. If your mortgage is 2.5% and you can reliably earn 5-6% through diversified investments, investing typically provides better returns. However, mortgage prepayment offers guaranteed returns (equal to your interest rate) with zero risk. Consider your risk tolerance and investment expertise before deciding.

Q5: Can I use CPF for lump sum prepayment?

A: Yes, for HDB loans, you can use CPF Ordinary Account funds for prepayment. For bank loans, you typically cannot use CPF directly for prepayment—you must use cash. However, you can withdraw CPF for other purposes and use the cash for bank loan prepayment. Remember that CPF withdrawals are permanent, so ensure you've considered the opportunity cost of losing that CPF balance.

Your Action Plan: Choosing Your Prepayment Strategy

Step 1: Identify your loan type. Is it an HDB loan or bank loan? This determines whether you face prepayment penalties.

Step 2: Check your lock-in period. If you have a bank loan, confirm when your lock-in period ends. Mark this date in your calendar—it's your prepayment strategy turning point.

Step 3: Calculate your opportunity cost. What interest rate could you earn elsewhere with the money you'd use for prepayment? If it's higher than your mortgage rate, consider investing instead.

Step 4: Explore refinancing. Use Homejourney's bank rates comparison tool to see if refinancing to a lower rate would save you more than prepayment. You can compare rates from DBS, OCBC, UOB, HSBC, Standard Chartered, Maybank, CIMB, and other major banks instantly.

Step 5: Implement your strategy. If prepayment is your choice, start with partial prepayments if you have an HDB loan or are past your lock-in period. If you're still in a lock-in period with a bank loan, confirm the partial prepayment allowance with your bank before proceeding.

Making Your Decision with Confidence

The choice between partial prepayment and lump sum payment isn't about which is universally better—it's about which aligns with your financial situation, loan type, and goals. HDB borrowers should lean toward consistent partial prepayments because there are zero penalties. Bank loan borrowers should wait until their lock-in period ends before making significant prepayments, unless their bank explicitly allows partial prepayment without penalty.

Most importantly, don't let prepayment enthusiasm override basic financial logic. If refinancing saves you more, if investments earn higher returns, or if you have higher-interest debt, those strategies deserve priority.

At Homejourney, we're committed to helping you make decisions that truly improve your financial position. Our bank rates comparison tool