Rental Yield vs Mortgage: Understanding Your Cash Flow
When evaluating an investment property in Singapore, the relationship between your rental yield and mortgage costs determines whether your investment generates positive cash flow or becomes a financial drain. Understanding this balance is essential for making informed decisions that protect your financial security—a core principle at Homejourney, where we help you evaluate property investments with complete transparency and verified data.
Rental yield represents the annual rental income as a percentage of the property's purchase price, while your mortgage payment is the cost of financing that property. The difference between these two figures—your cash flow—is what determines whether your investment works for you or against you.
Current Singapore Rental Yields and Market Context
Singapore's residential rental market currently offers gross rental yields averaging 3.29%, with variation across different regions and property types.[2] This represents a stabilization after rental declines in 2024, with the private rental index returning to positive territory in early 2025.[2] For context, Alexandra and Commonwealth offer yields above 3.6%, while prime areas like Orchard and River Valley yield closer to 3.1%.[2]
These yields are relatively modest compared to global averages, reflecting Singapore's high property prices and strict regulatory environment.[1] However, the stability of the Singapore market and strong tenant demand make these yields reliable for long-term investors.[2]
Understanding where these yields sit relative to current mortgage costs is crucial for your investment decision. This is where cash flow analysis becomes your most important tool.
Current Mortgage Rates in Singapore (January 2026)
Singapore's mortgage landscape has shifted significantly, with banks offering competitive rates across both fixed and floating options. As of late 2025, the lowest fixed-rate mortgages start from 1.35% for loans above S$2 million, while floating rates begin at 1M SORA + 0.25% (approximately 1.36%).[4]
For more typical loan amounts between S$500,000 and S$1 million, fixed rates range from 1.50% to 2.85% depending on the lock-in period and bank, while floating rates typically sit at SORA + 0.60%.[2][4] Major banks like DBS, OCBC, and UOB all offer competitive packages with 2-year lock-in periods.[4]
The chart below shows recent SORA trends to help you understand how rates have moved and what influences your floating rate mortgage:
These historically low rates create a significant advantage for property investors: your mortgage cost may be substantially lower than your rental yield, creating positive cash flow from day one.
Calculating Your Cash Flow: A Practical Framework
Let's work through a realistic example using current Singapore market data. Suppose you're purchasing a 2-bedroom condominium in Hougang for S$800,000 with a gross rental yield of 3.56%.[2]
Step 1: Calculate Gross Rental Income
- Property price: S$800,000
- Gross rental yield: 3.56%
- Annual gross rental income: S$800,000 × 3.56% = S$28,480
- Monthly gross rental income: S$28,480 ÷ 12 = S$2,373
Step 2: Calculate Your Mortgage Payment
Assuming a 25-year loan tenure with 80% LTV (S$640,000 borrowed) at 2.50% fixed rate:
- Loan amount: S$640,000
- Interest rate: 2.50% per annum
- Loan tenure: 25 years (300 months)
- Monthly mortgage payment: Approximately S$3,200
Step 3: Calculate Net Cash Flow (Before Other Costs)
- Monthly gross rental income: S$2,373
- Monthly mortgage payment: S$3,200
- Monthly cash flow: S$2,373 - S$3,200 = -S$827 (negative)
Step 4: Account for Additional Costs
This is where many investors make critical mistakes. You must factor in:
- Property tax (approximately 4-6% of annual value)
- Maintenance and repairs (typically 1-2% of property value annually)
- Property management fees (if using an agent: 5-8% of rental income)
- Insurance (approximately 0.3-0.5% of property value annually)
- Potential vacancy periods (budget 5-10% of annual income)
In this example, these costs would add another S$400-600 monthly, pushing your total monthly deficit to approximately S$1,200-1,400.
When Does Rental Yield Beat Mortgage Costs?
The scenario above illustrates a critical reality: in most Singapore property investments, rental income alone does not cover mortgage payments and operating costs. This is not necessarily a problem—it reflects how property investment actually works in Singapore's market.
Property investors typically benefit from three sources of return:
- Capital Appreciation: Property values typically increase over time. Historical Singapore data shows steady appreciation, though this is never guaranteed.
- Mortgage Principal Repayment: Each payment reduces your loan balance, building equity. After 25 years, you own the property outright.
- Rental Income: While it may not cover all costs initially, it contributes meaningfully to your returns.
The question isn't whether rental yield exceeds mortgage costs—it's whether your total return (appreciation + equity buildup + net rental income) justifies the investment and cash outlay.
Fixed vs. Floating Rate Mortgages for Investment Properties
Your choice between fixed and floating rates significantly impacts your cash flow predictability. Here's how they compare for investment properties:
Fixed-Rate Mortgages (Typical: 2.50% - 2.85% for 2-year lock-in)
- Predictable monthly payments for the lock-in period
- Protection against rate increases
- Better for budgeting and cash flow planning
- Slightly higher initial rates than floating options
Floating-Rate Mortgages (Typical: SORA + 0.60% = ~3.20%)
- Lower initial rates, potentially lower overall cost
- Monthly payments fluctuate with SORA movements
- Better suited for investors who can absorb payment increases
- More suitable for properties with strong rental income to offset increases
For investment properties specifically, floating rates are generally more suitable because rental income can offset increases in monthly repayment.[4] However, you should only choose floating if your cash flow can absorb a potential 1-2% rate increase without becoming unsustainable.
Optimizing Your Cash Flow: Practical Strategies
Strategy 1: Target Higher-Yield Properties
Focus on properties in areas with yields above 3.5%, such as Hougang, Punggol, and Sengkang (3.56% yields) rather than prime areas like Orchard (3.09%).[2] The additional 0.5% yield difference translates to meaningful monthly income on larger properties.
Strategy 2: Maximize Your Loan-to-Value (LTV) Ratio
Singapore banks typically allow 75-80% LTV for investment properties, compared to 90% for owner-occupied properties. Using higher LTV means lower cash outlay upfront, improving your cash-on-cash return. However, ensure you can comfortably service the larger loan.
Strategy 3: Consider Longer Loan Tenures
Extending your loan from 25 years to 30 years reduces monthly payments, improving short-term cash flow. The trade-off is higher total interest paid, but this may be worthwhile if it enables you to invest in additional properties.
Strategy 4: Choose Properties with Growth Potential
Select properties in areas experiencing development (new MRT lines, commercial centers, upcoming estates). These typically appreciate faster, offsetting lower initial cash flow.
Strategy 5: Time Your Purchase with Rate Cycles
With current rates at historic lows (1.35% - 2.85%), this is a favorable environment for locking in fixed rates if you believe rates will rise. Use Homejourney's real-time SORA tracking to monitor rate movements and time your refinancing decisions perfectly.
Using Homejourney to Optimize Your Mortgage Decision
Making the right mortgage choice requires comparing rates across multiple banks and understanding your true borrowing capacity. Homejourney's platform simplifies this process:
Compare Rates from All Major Banks
