Rental Yield vs Mortgage: Cash Flow Analysis for Singapore Investors

Rental Yield vs Mortgage: Understanding Your Investment Cash Flow

When evaluating an investment property in Singapore, comparing your rental yield directly against your mortgage interest rate seems logical on the surface. However, this oversimplified approach can lead to poor investment decisions. The real answer lies in understanding your complete cash flow picture—which requires analyzing net rental yield, total expenses, loan-to-value (LTV) ratios, and how your mortgage payments interact with your actual rental income over time.

At Homejourney, we prioritize helping Singapore property investors make confident, informed decisions by breaking down these complex financial relationships. This guide walks you through the cash flow analysis framework that professional investors use to evaluate whether a property will genuinely generate positive returns.

The Gross Yield Misconception: Why Net Matters

Most investors start by calculating gross rental yield—the annual rental income divided by the property purchase price. According to current Singapore market data, gross rental yields average around 3.36% across residential properties, with some submarkets like Hougang and Punggol reaching 3.60%.[1] This figure sounds straightforward, but it masks a critical reality: your gross rental income doesn't go directly toward your mortgage payments.

Here's the practical truth: if you earn $10,000 in gross rental income monthly, you don't keep the full amount. Just like salary deductions, rental income faces significant expenses before it reaches your bank account. In Singapore, the two major ongoing costs are property tax and maintenance.[3] Property tax alone typically runs 4-6% of your annual rental income, while maintenance, repairs, and potential vacancy periods can consume another 5-10% depending on the property age and condition.

To calculate your true investment performance, you must determine your net rental yield by deducting all expenses from gross rental income, then comparing this net figure against your mortgage interest rate. This gives you an accurate apples-to-apples comparison of whether rental income genuinely covers your financing costs.

Current Mortgage Rates and How They Impact Your Analysis

Singapore's mortgage landscape shifted significantly in 2025-2026. Banks currently offer fixed-rate mortgages ranging from 1.35% to 2.40% depending on loan size and tenure, while floating-rate options start from 1M SORA + 0.25% (approximately 1.36% as of late 2025).[1][5] The benchmark rate, SORA (Singapore Overnight Rate Average), has declined to 3-year lows, making this an attractive borrowing environment compared to historical averages.

The chart below shows recent SORA trends to help you understand how rates have moved and what this means for your mortgage costs:

However, here's where cash flow analysis becomes crucial: your mortgage rate today may not reflect your rate tomorrow. If you choose a floating-rate mortgage—which many investors do because rental income can offset rate increases—your monthly payment can rise if SORA increases.[5] Conversely, fixed-rate mortgages lock in predictability but typically come with higher initial rates and early redemption penalties of 1.50% if you sell within the lock-in period.[5]

This volatility matters enormously for cash flow. A property with a 3.5% net rental yield looks profitable when your floating mortgage rate sits at 2.0%, but that margin disappears if rates rise to 3.5%. Your rental income, however, can only increase yearly (and only if your tenant agrees), creating an asymmetric risk profile.

Loan-to-Value (LTV) Ratios: How They Shape Your Down Payment and Monthly Costs

Your LTV ratio directly determines how much you must put down and how much you borrow—both critical to cash flow analysis. For investment properties in Singapore, banks typically allow LTV ratios of 75-80% for first investment properties, meaning you must provide a 20-25% down payment.[7] This is higher than owner-occupied properties, which often qualify for 80-90% LTV.

Understanding investor LTV limits is essential because they affect your borrowing power and monthly mortgage payments. A larger down payment reduces your loan amount but ties up more capital upfront. A smaller down payment (higher LTV) preserves capital for other investments but increases your monthly mortgage obligation relative to rental income.

Let's examine a practical example using current Singapore market conditions:

Property Price: $800,000 (typical 3-bedroom executive condo)
Down Payment at 80% LTV: $160,000 (20%)
Loan Amount: $640,000
Mortgage Rate: 1.65% (floating, current market)
Loan Tenure: 25 years
Monthly Mortgage Payment: Approximately $2,700

Now compare this to rental income. The same property might command $4,000-4,200 monthly rent. Before calculating yield, deduct property tax ($200-250 monthly), maintenance reserves ($300-400 monthly), and vacancy buffer ($200 monthly). Your net monthly rental income drops to approximately $3,050-3,250, barely covering your $2,700 mortgage payment with minimal cash flow buffer.

This example illustrates why LTV ratios matter for cash flow: at 80% LTV, you're financing most of the purchase price, creating a thin cash flow margin. At 75% LTV (25% down payment), your loan amount would be $600,000, reducing monthly payments to approximately $2,530, providing better cash flow cushion.

For investors considering multiple properties, LTV limits become even more restrictive. Second investment properties typically face 75% LTV limits, and subsequent properties may face even tighter constraints depending on your total debt servicing ratio (TDSR). Understanding these limits upfront helps you structure your portfolio for sustainable cash flow.

The Rentability Trap: High Yield Doesn't Always Mean Strong Cash Flow

A counterintuitive reality in Singapore property investment: properties with the highest rental yields often have the lowest rentability—meaning they're hardest to rent out.[3] This creates a dangerous cash flow situation.

Consider two scenarios:

Scenario A: High Rentability, Lower Yield
A property in a hot demand area like Punggol or Hougang commands strong tenant interest. However, high demand also drives up purchase prices, reducing your rental yield to 3.4-3.6%. You'll find tenants quickly and maintain consistent occupancy, but your cash flow margin against mortgage costs is thin.

Scenario B: High Yield, Lower Rentability
A property with a lease period under 30 years has a lower purchase price (higher yield on paper), but tenants are hesitant about short leases. You might achieve 4.2% gross yield, but face 2-3 month vacancy periods between tenants, destroying your actual cash flow. During vacancy, you're paying the full mortgage from personal funds.

This rentability trap explains why analyzing only yield versus mortgage rates misses critical cash flow dynamics. A property with 3.5% yield and 95% occupancy rates generates more reliable cash flow than one with 4.2% yield and 70% occupancy rates.

Building Your Complete Cash Flow Analysis Framework

Professional investors evaluate investment properties using this structured cash flow framework:

Calculate Gross Rental Income: Research comparable rental rates in the area. Use conservative estimates rather than optimistic projections. Current Singapore market data suggests 1-bedroom units average $2,740 monthly, 2-bedroom units $3,520, and 3-bedroom units $4,930.[1]
Deduct All Operating Expenses: Include property tax (4-6% of rental income), maintenance reserves (5-10% annually), insurance (0.5-1% of property value), and vacancy buffer (5-10% of rental income). Don't forget agent fees if you use property managers.
Calculate Net Rental Income: Gross rental income minus all operating expenses equals your net monthly cash available.
Calculate Net Rental Yield: Divide net annual rental income by property purchase price. This is your true return metric.
Compare Against Mortgage Costs: Subtract your monthly mortgage payment from net rental income. If the result is positive, you have positive cash flow. If negative, you're subsidizing the investment monthly.
Stress Test for Rate Increases: If using floating rates, recalculate cash flow assuming rates rise 1-2%. Does your investment still work? If rates rise to 3.5-4.0%, do you have sufficient cash reserves to cover shortfalls?
Evaluate LTV Impact: Model different down payment scenarios (75% vs 80% LTV) to see how loan amounts affect monthly cash flow.

You can streamline this analysis using Homejourney's mortgage eligibility calculator, which helps you understand your borrowing capacity and monthly payment obligations across different loan amounts and interest rates. This foundation then feeds into your complete cash flow model.

Interest Rate Risk and Long-Term Cash Flow Sustainability

A critical element many investors overlook: interest rate risk compounds over time. Today's attractive 1.65% floating mortgage rate may seem comfortable against a 3.5% net rental yield, but this calculation assumes rates remain stable.[3]

Singapore's interest rate environment is cyclical. While SORA has declined to 3-year lows in 2025-2026, historical patterns show rates can rise 2-3% over economic cycles. If your floating mortgage rate rises from 1.65% to 3.65%, your monthly payment increases from $2,700 to approximately $3,300 on our $640,000 example loan. Your rental income, meanwhile, can only increase if you successfully negotiate higher rent with your tenant—and there's no guarantee they'll accept.

This asymmetry means your cash flow margin erodes during rising rate environments. Professional investors address this by:

Choosing fixed-rate mortgages for the first 3 years to lock in rates, then refinancing if rates decline
Requiring minimum 2% cash flow cushion (net rental income exceeds mortgage payment by at least 2%)
Maintaining cash reserves equal to 6-12 months of mortgage payments
Choosing properties with strong rental growth potential in their submarkets

To monitor rate movements and time your mortgage decisions strategically, track live SORA rates through Homejourney's bank rates page, which provides real-time 3M and 6M SORA data alongside current bank offerings.

Comparing Fixed vs Floating Rate Mortgages for Investment Properties

Your mortgage rate structure fundamentally shapes cash flow predictability. Fixed-rate mortgages (currently 1.55-2.40% for 1-3 year lock-in periods) provide payment certainty.[1] You know exactly what your mortgage payment will be for years, making cash flow forecasting straightforward. However, fixed rates typically run 0.2-0.5% higher than floating rates initially.

Floating-rate mortgages (currently 1M SORA + 0.25% spread, approximately 1.36%) offer lower initial rates but payment uncertainty.[1][5] Many investors prefer floating rates for investment properties because rental income can theoretically offset rate increases, unlike owner-occupied properties where salary must cover increases.[5] However, this assumes rental income actually rises—which isn't guaranteed.

For cash flow analysis, consider this decision framework:

Choose Fixed-Rate If: You want payment predictability, expect rates to rise, or your cash flow margin is tight (less than 2% cushion). The certainty justifies the slightly higher rate.

Choose Floating-Rate If: You have strong cash reserves, your cash flow margin exceeds 2%, you believe rates will stay stable or decline, and you can afford potential payment increases.

Many sophisticated investors use a hybrid approach: fixed-rate for 3 years (locking in current low rates), then refinancing to floating if rates decline or staying fixed if rates have risen significantly.

Down Payment Strategy and LTV Optimization for Cash Flow

Your down payment decision directly impacts cash flow sustainability. A larger down payment (lower LTV) means smaller monthly mortgage payments but ties up more capital. A smaller down payment (higher LTV) preserves capital but increases monthly obligations.

For investment properties, banks typically offer 75-80% LTV. Second investment properties face tighter 75% LTV limits. Here's how down payment affects cash flow:

Down Payment %	LTV	Loan Amount ($800k property)	Monthly Payment (1.65%)	Cash Flow Impact
20%	80%	$640,000	$2,700	Thin margin, rate-sensitive
25%	75%	$600,000	$2,530	Comfortable margin, sustainable
30%	70%	$560,000	$2,360	Strong margin, conservative

The difference between 80% and 75% LTV is $170 monthly—but over 25 years, that's $51,000 in reduced mortgage payments. More importantly, the lower monthly obligation creates cash flow breathing room if rates rise or rental income dips temporarily.

For investors financing multiple properties, down payment strategy becomes even more critical. Larger down payments on initial properties preserve your TDSR (total debt servicing ratio) capacity for subsequent acquisitions. Learn more about structuring multiple investment properties in our guide on Financing Multiple Investment Properties Singapore: Homejourney 2026 Guide .