Partial Prepayment vs Lump Sum: Which Strategy Saves More on Your Singapore Mortgage?
When you have spare cash—whether from a year-end bonus, inheritance, or investment returns—the decision to prepay your mortgage is tempting. But should you make partial prepayments over time, or deploy a lump sum payment all at once? The answer depends on your financial situation, penalty structure, and long-term goals. Both strategies reduce interest and shorten your loan tenure, but they work differently and carry distinct advantages and risks.
At Homejourney, we believe informed financial decisions start with understanding your options. This guide breaks down partial prepayment versus lump sum payments, shows you the real savings potential, and reveals the hidden costs that could wipe out your gains. We'll also show you how to use Homejourney's tools to model different scenarios and make the choice that's right for your situation.
Understanding the Two Prepayment Strategies
What is a Lump Sum Payment?
A lump sum payment is a one-time, substantial prepayment toward your mortgage principal.[1] Instead of spreading extra payments across multiple years, you pay a large amount upfront—typically $40,000 to $100,000 or more, depending on your financial capacity. This immediately reduces your outstanding loan balance and the total interest you'll pay over the remaining tenure.[1]
For example, if you have an $800,000 mortgage over 25 years and make a one-time $80,000 lump sum payment, your monthly payment drops from $4,440 to $4,210, and you save $60,300 in total interest over the loan period (assuming a 5% interest rate).[2]
What is Partial Prepayment?
Partial prepayment means making smaller, regular extra payments toward your principal over time. Banks typically require a minimum of $10,000 per partial prepayment for private mortgages (or $5,000 for HDB loans), with increments in multiples of $1,000.[1][4] You might make a $15,000 prepayment one year, another $20,000 the following year, and so on, spreading your extra payments strategically.
This approach gives you flexibility: you can pause prepayments if your cash flow tightens, or accelerate them when you have surplus funds. It's particularly useful if you're uncertain about future income or want to maintain liquidity for emergencies or investments.
The Real Savings: Lump Sum vs Partial Prepayment
Both strategies reduce your total interest paid, but the timing and amount matter significantly. Here's what the numbers show:
Lump Sum Advantage: Immediate Impact
When you make a lump sum payment, you immediately reduce your principal balance, which means interest accrues on a lower amount from that point forward.[1] If you prepay $80,000 early in your loan tenure, you save decades of interest on that $80,000. The earlier you make the lump sum payment, the greater your total savings.
Using the $800,000 mortgage example: a $40,000 lump sum saves $30,150 in interest, while an $80,000 lump sum saves $60,300.[2] The larger the lump sum and the earlier you make it, the more dramatic the savings.
Partial Prepayment Advantage: Flexibility and Compound Savings
Partial prepayments offer psychological and financial benefits. Each prepayment reduces your principal, lowering future interest calculations. Over time, these smaller payments compound—you're paying interest on progressively lower balances. If you make $20,000 in partial prepayments annually for five years, you've reduced your principal by $100,000, and each year's prepayment saves interest for the remaining tenure.
The key advantage: you retain flexibility. If your job becomes uncertain or you need cash for an emergency, you can pause prepayments without penalty (provided you're not in a lock-in period). With a lump sum, that capital is committed immediately.
The Hidden Cost: Prepayment Penalties That Erase Your Savings
Here's the critical factor most borrowers overlook: prepayment penalties can eliminate your interest savings entirely.[1]
How Prepayment Penalties Work
During the lock-in period (typically 3-5 years), banks charge penalties if you prepay your mortgage.[1][4] Most private banks charge 1.5% of the prepaid amount as a penalty fee.[1] This means:
- Prepay $80,000 during lock-in: You pay $1,200 in penalties (1.5% × $80,000)
- Prepay $40,000 during lock-in: You pay $600 in penalties
For HDB loans, there is no prepayment penalty, which makes HDB borrowers in a much stronger position to prepay aggressively.[6]
When Penalties Destroy Your Savings
If your lump sum saves $30,150 in interest but costs $1,200 in penalties, your net savings drops to $28,950. However, if you're refinancing and the prepayment penalty is $3,000 or more, you might save nothing at all. This is why checking your loan agreement before prepaying is non-negotiable.[1]
Homejourney recommends: If you're considering prepayment during the lock-in period and penalties apply, refinancing may be the better option.[1] By refinancing to a new loan with a lower rate, you avoid penalties entirely and still achieve interest savings.
Partial Prepayment vs Lump Sum: A Comparative Framework
To help you decide, here's how these strategies compare across key dimensions:
| Factor | Lump Sum Payment | Partial Prepayment |
|---|---|---|
| Interest Savings | Maximum (immediate principal reduction) | Good (gradual principal reduction) |
| Cash Flow Impact | Significant (large upfront commitment) | Manageable (spread over time) |
| Flexibility | Low (capital committed immediately) | High (can pause or adjust) |
| Penalty Risk | Higher (larger amount × 1.5%) | Lower (smaller amounts × 1.5%) |
| Future Borrowing Capacity | Reduced (equity locked in property) | Reduced (same effect over time) |
| Best For | Bonus payouts, inheritance, after lock-in | Regular savings, uncertain income |
Critical Consideration: Opportunity Cost and Investment Returns
Before you prepay—whether lump sum or partial—consider this: not all debt is bad debt.[1] If your mortgage rate is 3.5% and you can invest your spare cash at 5-6% returns, you're better off investing than prepaying.[5]
Here's the logic: If you have $50,000 in spare cash and your mortgage rate is 3.5%, prepaying saves you 3.5% in interest. But if you invest that $50,000 in a diversified portfolio earning 5%, your net gain is 1.5% annually. Over 10 years, the investment strategy yields significantly more wealth.
However, this assumes you actually invest the money and don't spend it. Many Singaporeans find that prepaying their mortgage provides psychological security and forces disciplined saving—which may be worth more than the mathematical 1.5% difference.
The Emergency Fund Principle
Financial advisors recommend maintaining an emergency fund of 6-12 months of expenses before aggressively prepaying your mortgage.[3] If you deplete your cash reserves to make a large lump sum payment and then face a job loss or medical emergency, you'll be forced to take an equity term loan (ETL) or refinance—both of which incur costs and reduce your flexibility.[3]
Partial prepayment is safer for this reason: you maintain some liquidity while still reducing your mortgage burden.
The Lock-In Period: Timing Your Prepayment Strategy
Your prepayment strategy should align with your loan's lock-in period:
During Lock-In (Years 1-3 or 1-5)
If penalties apply, avoid lump sum payments unless the interest savings far exceed the penalty cost. Instead:
- Make small partial prepayments (minimum $10,000) to test your cash flow
- Consider refinancing if rates have dropped significantly
- Build your cash reserves for a larger prepayment after lock-in expires
After Lock-In Expires
Once the lock-in period ends, prepayment penalties typically disappear or become minimal. This is the ideal time for a lump sum payment if you have accumulated significant savings. The penalty-free environment means 100% of your prepayment reduces your principal without friction costs.
How Homejourney Helps You Model Your Prepayment Strategy
Making the right prepayment decision requires comparing your current mortgage rate, penalties, lock-in status, and investment opportunities. Homejourney's tools simplify this analysis:
1. Bank Rates Comparison
Visit Bank Rates to compare current mortgage rates from DBS, OCBC, UOB, HSBC, Standard Chartered, Maybank, and other major banks. If your current rate is significantly higher than market rates, refinancing (instead of prepaying) might be the smarter move. Our platform shows you the exact rates available, helping you decide whether to prepay your current loan or refinance to a lower rate.
2. Mortgage Eligibility Calculator
Before committing to a prepayment strategy, understand your borrowing capacity. Use Homejourney's eligibility calculator to see how much you can borrow, your TDSR (Total Debt Servicing Ratio), and your monthly payment obligations. This helps you determine how much spare cash you can safely prepay without compromising your financial flexibility.
3. Multi-Bank Application Process
If you decide refinancing is better than prepaying, Homejourney's multi-bank application system lets you submit one application to DBS, OCBC, UOB, HSBC, Standard Chartered, and more simultaneously. Instead of visiting each bank individually, you apply once via Singpass (which auto-fills your income and CPF data), and receive competing offers within days. This transparency helps you choose the best refinancing deal.
4. Real-Time SORA Tracking
If your mortgage is linked to SORA (Singapore Overnight Rate Average), Homejourney's real-time rate tracking helps you time your refinancing or prepayment decisions. When SORA drops, refinancing becomes more attractive. When it rises, you might want to lock in a fixed rate or accelerate prepayments to reduce your floating-rate exposure.
