Partial Prepayment vs Lump Sum: Which Strategy Saves You More?
For Singapore homeowners, the question of how to reduce mortgage costs often comes down to this: should you make regular partial prepayments or wait to make one large lump sum payment? The answer depends on your financial situation, loan type, and prepayment penalties—but the data shows that consistent partial prepayments typically save more interest overall compared to waiting for a lump sum, especially when you factor in the time value of money.[1]
At Homejourney, we believe in empowering homeowners with transparent, verified information to make confident financial decisions. This guide breaks down the real differences between these strategies, shows you the actual savings with real numbers, and helps you choose the approach that works best for your mortgage.
Understanding Partial Prepayment vs Lump Sum Payments
Partial prepayment means making additional payments toward your mortgage principal at regular intervals—monthly, quarterly, or annually—while keeping your loan tenure the same.[1] This reduces your outstanding balance gradually and lowers the total interest you pay over the life of the loan.
Lump sum prepayment is a one-time, large payment toward your principal, typically made when you receive a bonus, inheritance, or other windfall.[1] While it sounds appealing, the timing and frequency matter significantly for your total savings.
The key difference? Partial prepayments start saving you interest immediately, while lump sum payments only save interest from the moment you make them. If you're waiting years to accumulate a large lump sum, you're paying interest on the full amount during that waiting period.
Real Numbers: How Much Can You Actually Save?
Let's look at a concrete example based on typical Singapore mortgage scenarios:
Scenario: $800,000 HDB or Private Property Loan Over 25 Years at 5% Interest
If you make a one-time partial prepayment:
- $40,000 prepayment (5% of loan): Monthly payment drops from $4,440 to $4,210, and you save $30,150 in total interest[1]
- $80,000 prepayment (10% of loan): Monthly payment drops to $4,210, and you save $60,300 in total interest[1]
These numbers assume the interest rate remains at 5% for the remaining 25 years. However, the real advantage of partial prepayment emerges when you consider the compounding effect: every dollar you prepay stops accruing interest immediately, and that interest savings grows over time.
For example, if you prepay $1,000 monthly instead of waiting for a $12,000 annual lump sum, you save approximately 11 months of interest on that $12,000. Over a 25-year loan, this compounds into significant savings.
The Critical Role of Prepayment Penalties
Before you make any prepayment decision, you must understand your loan's lock-in period and prepayment penalty structure. This is where many Singapore borrowers make costly mistakes.
For HDB Loans: There is no lock-in period and no prepayment penalty, regardless of when you pay off your loan.[2] This means you can prepay as much as you want without financial consequences. HDB's fixed rate of 2.6% per annum also means your interest costs are predictable and stable.[2]
For Bank Loans: Most banks impose a lock-in period of 1-3 years, during which prepayment penalties apply.[3] The typical penalty is 0.75% to 1.5% of the amount being prepaid.[3] For example, if you prepay $100,000 with a 1.5% penalty, you'll pay $1,500 in fees.[3]
This is crucial: a prepayment penalty can completely eliminate the interest savings from early payment. If you save $2,000 in interest but pay $1,500 in penalties, your net savings is only $500. Always check your loan documents before prepaying.
The good news? Many banks now offer partial prepayment waivers during the lock-in period. Most floating-rate mortgages allow you to prepay up to 30-50% of your outstanding loan without penalties.[4] Fixed-rate packages are typically more restrictive. When comparing loans on Homejourney's bank rates page, you can filter by prepayment flexibility to find options that suit your strategy.
Partial Prepayment: The Steady Approach
How it works: You commit to paying an extra amount each month or quarter toward your principal. For example, instead of paying $4,440 monthly, you pay $4,540 (adding $100 to principal reduction).
Advantages:
- Interest savings begin immediately and compound over time
- Builds discipline and makes extra payments a habit
- Often no penalties for partial prepayment on floating-rate loans
- Provides flexibility—you can adjust the amount if cash flow changes
- Works well if you receive regular bonuses or consistent extra income
Disadvantages:
- Requires consistent cash flow and budgeting discipline
- Smaller individual payments feel less impactful psychologically
- If you stop making extra payments, the benefit ends immediately
- May be subject to penalties during lock-in period (depending on bank)
Best for: Borrowers with stable, predictable income; those who want to reduce loan tenure gradually; and anyone seeking to optimize interest savings without large upfront capital requirements.
Lump Sum Prepayment: The Windfall Approach
How it works: You receive a bonus, inheritance, or other large sum and decide to apply it toward your mortgage principal in one payment.
Advantages:
- Significant immediate reduction in outstanding principal
- Substantial interest savings if applied early in the loan tenure
- Psychologically satisfying—you can see a major dent in your debt
- Can dramatically shorten loan tenure if applied strategically
- Single transaction—no ongoing commitment required
Disadvantages:
- Ties up capital that could be invested or kept as emergency savings
- Subject to prepayment penalties during lock-in period (typically 1-1.5%)
- If you're waiting years to accumulate a lump sum, interest accrues on the full balance during that time
- Less effective if made late in the loan tenure (less interest to save)
- Reduces liquidity and financial flexibility
Best for: Borrowers who receive irregular large sums (bonuses, property sales, inheritance); those nearing the end of their lock-in period; and HDB borrowers with no prepayment penalties.
Partial Prepayment vs Lump Sum: The Verdict
Based on the data and real-world scenarios, partial prepayment typically saves more total interest because:
- Time value of money: Every dollar prepaid stops accruing interest immediately. Partial prepayments start this process sooner.
- Compounding effect: Interest savings compound over time. Monthly prepayments compound 12 times per year.
- Penalty avoidance: Many banks allow partial prepayments without penalties, while lump sums may trigger fees.
- Flexibility: You maintain liquidity for emergencies while still reducing debt.
However, lump sum prepayments can be superior if:
- You have an HDB loan (no penalties, no lock-in period)
- You're outside the lock-in period for a bank loan
- The lump sum is applied early in the loan tenure (years 1-5)
- You receive the windfall immediately, not years from now
Frequently Asked Questions About Prepayment Strategies
1. Can I combine partial prepayment and lump sum payments?
Absolutely—and this is often the optimal strategy. Make regular partial prepayments to build discipline and start saving interest immediately, then apply lump sums (bonuses, tax refunds) when they arrive. This combines the benefits of both approaches: consistent interest reduction plus larger accelerated payments when possible. Just ensure your lump sum doesn't violate your lock-in period restrictions.
2. Should I prepay my mortgage or invest the money instead?
This depends on your mortgage interest rate versus potential investment returns. If your mortgage rate is 3.5% and you can reliably earn 5%+ through investments, investing might be better mathematically. However, mortgage prepayment offers guaranteed returns (the interest rate you're avoiding) with zero risk. Most financial advisors recommend a balanced approach: prepay enough to feel progress on your debt, but maintain investments for diversification and liquidity. For HDB borrowers at 2.6%, the guaranteed return is lower, so investing might be more attractive.
3. What's the impact of prepayment on my monthly cash flow?
Partial prepayments reduce your monthly payment amount, freeing up cash for other needs. For example, a $40,000 prepayment on an $800,000 loan can reduce your monthly payment by $230.[1] However, lump sum payments don't affect monthly payments—they only reduce the principal balance. If cash flow is tight, partial prepayment provides ongoing relief. If you have surplus cash, lump sum prepayment doesn't strain monthly budgets.
4. When is the best time to make a lump sum prepayment?
The best time is early in your loan tenure (years 1-7) and after your lock-in period ends. Early prepayments save the most interest because you're reducing the principal when interest calculations are highest. After the lock-in period, you avoid prepayment penalties entirely. For example, a $50,000 prepayment in year 1 saves far more interest than the same payment in year 20. If you're locked in and penalties apply, wait for the lock-in period to end unless the penalty is minimal.
5. How do I know if my bank allows prepayment without penalties?
Check your loan offer letter or contact your bank directly. Most banks allow partial prepayment (typically 30-50% of outstanding loan) on floating-rate mortgages without penalties.[4] Fixed-rate packages are usually more restrictive. When comparing loans on Homejourney's bank rates page, you can see which banks offer flexible prepayment terms and filter by this feature. Our mortgage brokers can also help you understand your specific loan's prepayment rules.
Strategic Recommendations for Singapore Borrowers
For HDB Borrowers: Take full advantage of your zero-penalty policy. Make regular partial prepayments to build discipline, and apply any windfalls as lump sums immediately. Your 2.6% fixed rate is already competitive, so focus on reducing tenure rather than refinancing.
For Private Property Buyers with Bank Loans: During the lock-in period, make partial prepayments up to your allowed limit (usually 30-50%) to avoid penalties. Once the lock-in period ends, you can make larger lump sum payments or refinance to a better rate if market conditions improve. Track SORA movements using Homejourney's real-time rate tracker to time your decisions perfectly.
For Refinancers: If you're refinancing, negotiate for flexible prepayment terms upfront. Many banks now offer partial prepayment waivers during lock-in periods—this is a key differentiator. Use Homejourney's bank rates comparison to find lenders offering the best prepayment flexibility for your profile.
For Everyone: Calculate your exact savings before prepaying. Use Homejourney's mortgage calculator to model different prepayment scenarios and see the impact on your tenure and total interest paid. This removes guesswork and helps you make data-driven decisions.
How Homejourney Helps You Optimize Your Prepayment Strategy
Making the right prepayment decision requires accurate information about your current loan, available alternatives, and market conditions. Homejourney is built specifically to help Singapore homeowners navigate these decisions safely and confidently:
- Compare bank rates and prepayment terms: View prepayment policies from DBS, OCBC, UOB, HSBC, Standard Chartered, Maybank, and other major banks in one place. Filter by prepayment flexibility to find loans matching your strategy.
- Calculate your exact savings: Use our mortgage calculator to model partial prepayment and lump sum scenarios. See exactly how much interest you'll save and how tenure changes.
- Track SORA movements: Monitor real-time 3M and 6M SORA rates to understand when refinancing or repricing makes sense.
- Apply via Singpass: Submit one application and receive offers from multiple banks. Banks compete for your business, often resulting in better rates and terms.
- Get expert guidance: Connect with Homejourney's mortgage brokers who provide personalized advice based on your financial situation and goals.
