Partial Prepayment vs Lump Sum: Which Strategy Saves You More on Your Singapore Mortgage?
When you have extra cash available, deciding whether to make a partial prepayment or a lump sum payment on your home loan can significantly impact your long-term financial position. Both strategies reduce your outstanding principal and save on interest, but they work differently—and one may be better suited to your circumstances than the other.
At Homejourney, we believe in empowering Singapore property buyers with transparent, verified information to make confident financial decisions. This guide breaks down the key differences between partial prepayment and lump sum payments, shows you real calculations, and explains how to evaluate which strategy aligns with your financial goals.
Understanding the Key Difference: Partial Prepayment vs Lump Sum
While these terms are often used interchangeably, they represent slightly different approaches to accelerating your mortgage repayment:
- Partial Prepayment: A one-time or periodic payment of a portion of your outstanding loan balance, typically in multiples of $1,000 with a minimum of $10,000 per transaction. Your loan tenure remains the same, but your monthly payment reduces.
- Lump Sum Payment: A larger, one-time payment applied to your principal. This can either reduce your monthly payment or shorten your loan tenure, depending on your agreement with the bank.
The critical distinction is flexibility: partial prepayments are more structured (banks set minimum amounts), while lump sum payments offer greater discretion in how you apply the funds.
Real Numbers: How Much Can You Actually Save?
Let's examine concrete examples to illustrate the savings potential. According to MoneySENSE, if you have an outstanding home loan of $800,000 over 25 years at 5% per annum:
- No prepayment: Monthly payment = $4,440
- $40,000 partial prepayment (5%): Monthly payment reduces to $4,210, saving $230 per month or $30,150 over the remaining tenure
- $80,000 partial prepayment (10%): Monthly payment reduces to $4,070, saving $370 per month or $60,300 over the remaining tenure
This demonstrates the power of compounding: a $40,000 prepayment generates $30,150 in interest savings—a 75% return on your prepayment amount. Doubling the prepayment to $80,000 doubles your savings to $60,300.
For a more modest example, if you borrowed $500,000 for 20 years, a one-time $30,000 prepayment would reduce your monthly payment from $2,649 to $2,249—saving $160 monthly or $38,400 over the loan tenure.
The Critical Factor: Prepayment Penalties and Lock-In Periods
Before making any prepayment decision, you must understand your bank's prepayment terms. According to the Association of Banks in Singapore, banks may impose penalties when you:
- Make a prepayment without giving advance notice to your lender
- Settle the outstanding loan in full before the expiry of the lock-in period (typically 1-3 years)
- Make a prepayment during the lock-in period that causes your outstanding principal to fall below a stipulated minimum balance
These penalties can significantly erode your savings. For example, a 1% prepayment penalty on an $80,000 prepayment would cost you $800—reducing your net interest savings from $60,300 to $59,500. Always check your loan agreement or contact your bank before proceeding.
Homejourney recommends using our Bank Rates page to compare prepayment terms across DBS, OCBC, UOB, HSBC, Standard Chartered, and other major banks. Different lenders have different policies, and choosing a bank with flexible prepayment terms can save you thousands.
Partial Prepayment vs Lump Sum: Which Strategy Wins?
The answer depends on your financial situation and goals:
Choose Partial Prepayment If:
- You want predictable monthly payment reductions and improved cash flow
- You prefer making multiple smaller payments over time rather than one large payment
- Your bank requires minimum amounts ($10,000+) for each prepayment transaction
- You want to maintain flexibility for future financial needs
- You're concerned about depleting your emergency fund with a single large payment
Choose Lump Sum Payment If:
- You've received a windfall (bonus, inheritance, property sale proceeds) and want immediate impact
- You can afford to reduce your loan tenure significantly, accelerating debt freedom
- Your bank offers favorable terms for lump sum payments without penalties
- You want to maximize interest savings in a single transaction
- You're refinancing and want to reduce your loan-to-value (LTV) ratio for better future borrowing capacity
The Hidden Risk: Depleting Your Emergency Fund
One critical consideration that many Singapore homeowners overlook is liquidity. Making large prepayments can leave you cash-poor if unexpected expenses arise—medical emergencies, job loss, or urgent home repairs.
Financial advisors typically recommend maintaining 6-12 months of salary as emergency reserves. Before making any prepayment, ensure you have this buffer in place. Homejourney's approach prioritizes your financial safety above all else—we recommend calculating your true affordability using our mortgage eligibility calculator at Bank Rates before committing to prepayment strategies.
Consider this cautionary scenario: if you prepay $100,000 to reduce your mortgage, but then face a $50,000 emergency, you may need to borrow against your home equity at higher rates—negating your prepayment savings.
Refinancing vs Prepayment: Which Saves More?
Here's a surprising insight: in many cases, refinancing your mortgage may save you more than prepayment, especially if interest rates have dropped since you took your original loan.
Consider this comparison for a $500,000 loan:
- Refinancing approach: Upfront costs $0 (banks typically subsidize legal and valuation fees), total savings $40,080
- Prepayment approach: Upfront cost $50,000 (your cash), net savings after prepayment $13,600 ($63,600 total savings minus $50,000 cash deployed)
Refinancing comes out ahead by $26,480 while preserving your $50,000 in cash. However, this only works if your outstanding loan amount is substantial enough and your LTV is favorable for refinancing approval.
Homejourney makes refinancing comparison simple. Visit our Bank Rates page to see current refinancing offers from multiple banks and calculate whether refinancing or prepayment makes more sense for your situation.
The CPF Consideration: Should You Use CPF for Prepayment?
Many Singapore homeowners consider using CPF savings to prepay their mortgages. While this might seem logical, it's often not the optimal strategy.
Here's why: CPF savings earn 2.5% per annum (for Ordinary Account balances above $20,000). Current mortgage rates typically range from 3.5% to 4.5%. While the interest rate differential makes prepayment mathematically attractive, you lose the flexibility of CPF funds.
Once you withdraw CPF to prepay, you cannot easily access those funds again. Additionally, CPF used for property purchases must be repaid to your CPF account when you sell the property. Using CPF for prepayment complicates this repayment obligation.
For most homeowners, keeping CPF intact and using cash reserves for prepayment (if you choose to prepay at all) is the safer approach. Homejourney's mortgage brokers can discuss your specific CPF situation when you apply via our Bank Rates platform.
Interest-Offset Accounts: The Smart Alternative to Prepayment
Here's a strategy many Singapore borrowers don't know about: interest-offset accounts. These accounts provide the same interest-saving benefit as prepayment without actually requiring you to prepay.
How they work: You maintain a savings account linked to your mortgage. The balance in this account "offsets" your mortgage principal for interest calculation purposes, but you retain full access to the funds. If circumstances change, you can withdraw the money without penalties.
This is particularly valuable if you're uncertain about your future financial needs. You get prepayment benefits with prepayment flexibility. Ask your bank whether they offer interest-offset accounts—many major Singapore banks do, though they're not always prominently advertised.
How to Apply Your Prepayment Strategy via Homejourney
Step 1: Calculate Your Prepayment Impact
Before committing to any prepayment, use Homejourney's mortgage calculator at Bank Rates to model different scenarios. Input your loan amount, tenure, interest rate, and proposed prepayment amount to see exact monthly savings and total interest reduction.
Step 2: Compare Bank Prepayment Terms
Different banks have different prepayment policies. Some charge penalties; others don't. Some require minimum prepayment amounts of $10,000; others accept smaller amounts. Visit Homejourney's Bank Rates page to compare prepayment terms across DBS, OCBC, UOB, HSBC, Standard Chartered, Maybank, CIMB, RHB, and other lenders.
Step 3: Verify Your Emergency Fund
Ensure you maintain 6-12 months of salary in accessible savings before making any prepayment. Homejourney prioritizes your financial safety—never prepay at the expense of your emergency reserves.
Step 4: Submit Your Application via Homejourney
If you're considering refinancing to optimize your prepayment strategy, apply via Homejourney's Bank Rates page. Using Singpass integration, your income, employment, and CPF data auto-fill instantly. One application reaches DBS, OCBC, UOB, HSBC, Standard Chartered, and more simultaneously.
Homejourney's mortgage brokers will help you evaluate whether prepayment, refinancing, or a combination strategy best suits your financial goals. We provide personalized guidance based on verified information about your situation—ensuring you make decisions that truly benefit your long-term financial health.
Step 5: Execute and Monitor
Once you've decided on your prepayment strategy, contact your bank with advance notice (typically 7-14 days required). Confirm the exact amount, ensure there are no penalties, and verify the payment method. After prepayment, request updated loan statements to confirm the principal reduction and new monthly payment amount.
FAQ: Your Prepayment Questions Answered
Q: Can I make partial prepayments multiple times?
A: Yes, most banks allow multiple partial prepayments throughout your loan tenure. However, each prepayment typically requires a minimum amount (usually $10,000) and advance notice. Some banks may limit the frequency of prepayments, so check your loan agreement or contact your lender.
Q: What happens to my monthly payment after a prepayment?
A: After a partial prepayment, your monthly payment typically decreases while your loan tenure remains the same. This improves your monthly cash flow but doesn't shorten your repayment period. Alternatively, you can request that your bank maintain the same monthly payment, which shortens your tenure instead—allowing you to become debt-free faster.
Q: Are there tax benefits to prepaying my mortgage?
A: In Singapore, there are no specific tax deductions for mortgage prepayment on owner-occupied properties. However, if you own investment properties, you may be able to deduct mortgage interest as a business expense. Consult a tax professional for your specific situation.
Q: Should I prepay if I'm planning to sell my property soon?
A: Generally, no. If you're selling within 5 years, the interest savings from prepayment may not justify tying up your cash. You'll need that liquidity for transaction costs, stamp duties, and agent fees. Instead, focus on maintaining strong emergency reserves.
Q: Can I prepay if I'm currently in a lock-in period?
A: Most banks prohibit prepayment during lock-in periods (typically 1-3 years) or charge substantial penalties if you do. Check your loan agreement for your specific lock-in terms. If you're in a lock-in period and want to prepay, consider waiting until it expires or refinancing to a bank with more flexible terms.
