There’s a real sense of relief that comes with owing the bank less — every prepayment is money that will never accrue interest again. Whether that’s actually the best use of your money is a genuinely close call, and it comes down to one comparison: your mortgage rate versus what your money could earn in other alternative investments. In this article, we explore both sides so you can weigh the decision for your own situation.

There are two ways to prepay: partial prepayment, a lump sum that reduces your outstanding loan without closing it, and full redemption, which clears the loan entirely.

Important Numbers

These are some of the safe alternative investments you can consider putting your money in:

Where your money goes	Current rate
Bank mortgage (fixed or SORA-floating)	~1.3%–1.5% p.a.
HDB concessionary loan	2.6% p.a. (fixed, pegged at CPF OA + 0.1%)
CPF Ordinary Account	2.5% p.a.
6-month T-bill	~1.6% p.a. (moves every auction)
Singapore Savings Bond	~1.5%–2.1% p.a. depending on tenure
Fixed deposit (best rates)	~1.5%–1.6% p.a.

Figures are updated as of Aug 2026

Based on current market conditions, bank mortgage rates are currently lower than the HDB concessionary rate. If you are paying off a bank loan at 1.3–1.5%, almost every “safe” alternative on this list beats your mortgage rate. It makes it a sound case to use them for investment rather than paying off the mortgage loan. If you are on an HDB loan at 2.6%, the opposite seems to be a better choice, as T-bills, SSBs, and fixed deposits are earning you a far lower rate than your mortgage loan rate.

Keep the Mortgage

Home loans probably have one of the cheapest borrowing costs compared to other personal loans. Credit card interest runs 25% to 28% a year if you fail to clear the outstanding balance, and other personal loans typically charge around 4% to 7% interest. Comparatively, mortgage loans, regardless of bank or HDB loan, charge around 1.5% to 2.6% interest, which is among the lowest interest rates.

Invest the money

If your mortgage rate is below what you can earn elsewhere, it is mathematically sound to keep paying the minimum and put spare cash toward investments instead. However, you should compare it to your actual investment returns before assuming this applies to you.

Liquidity

Having cash on hand is a sense of grounded feeling that goes beyond its interest rate. It is a lifesaver for situations like sudden retrenchment, heavy medical bills, or big expenses without forcing you to take a high-interest loan to bridge the gap. Houses are illiquid by comparison, and the only way to raise funds from it is to sell or rent it, and either option takes time to happen.

Flexibility on partial prepayment

If you are within a bank loan’s lock-in period, some banks allow for partial prepayment, usually up to 20% to 50% of the original loan amount per year without triggering a penalty. This is dependent on the bank and the specific package you took up. Instead of fully paying off your loan, having the option to pay off a partial amount is also a good middle ground to slowly reduce your loan.

Pay Off Mortgage Early

There are also many people who prefer to pay off their home mortgage as soon as possible. Bank loan interest generally fluctuates, and a 1% increment in the interest rate would increase the mortgage instalments significantly.

Your mortgage rate is higher than the safe alternatives

If your mortgage rate is higher than what you can earn risk-free elsewhere, prepaying is a guaranteed, tax-free return equal to your interest rate. No safe investment offers a better sure thing.

Peace of mind

Financially optimal isn’t the same as psychologically sustainable. Carrying a large debt for 20 to 25 years is a real mental weight for a lot of people, and that weight tends to get heavier if you’re in your 40s or 50s and retrenchment or a health scare becomes a more realistic risk. A “better” investment return doesn’t help much if the debt itself is costing you sleep.

You’re CPF-rich with no better use for it

If your CPF Ordinary Account balance is a comfortable amount and you are not planning to invest it elsewhere, using it to pay down the loan is a reasonable way to put otherwise-idle savings to work. OA itself earns 2.5%, so using CPF to pay off an HDB loan at 2.6% nets you only about 0.1% return.

Lock-In Penalty

If you’re on a bank loan and are still within the lock-in period, you need to work out if it is favourable for you to do a full redemption of the loan. Full redemption during lock-in typically triggers a penalty of 0.75% to 1.5% of the outstanding amount. If you still have an outstanding loan of $500k, that would be $3,750 to $7,500 gone before you have saved a cent in interest. Some banks also claw back any legal or valuation subsidy they covered when you took the loan, and that clawback window may be longer than the lock-in itself.

HDB loans have no such penalty, which makes it one of the best loan to take if you intend to prepay or redeem your loan early. For the full walk-through of fees, timelines, and what happens to your CPF afterward, see How to Pay Off Your Housing Loan in Full.

Which Debt to Pay Off First

Not all debt is equal, and if you are weighing a mortgage prepayment against other loan obligations, the mortgage loan is probably the last one to pay off:

Debt type	Typical rate
Credit card (revolving balance)	25%–28% p.a.
Personal loan	~4%–7% p.a. effective (lower on short promotions)
HDB concessionary loan	2.6% p.a.
Bank mortgage	~1.3%–1.5% p.a.

Clear the credit card and personal loan debt first, as these have very high interest rates.

FAQ

Is it better to pay off an HDB loan or a bank loan early?

Mathematically, this is dependent on which option nets you higher returns. Right now, most safe investments (~1.3–1.5%) have lower rates than HDB loans (2.6%), which makes it mathematically correct to pay off an HDB loan early.

Does paying off my mortgage early save me from a prepayment penalty?

No, instead it may trigger one. HDB loans does not charge a prepayment penalty. If you are within the lock-in period, bank loan typically charges 0.75% to 1.5% of the outstanding amount for full redemption. However, some packages allow for partial prepayment penalty-free even during lock-in.

What tis the minimum amount I can prepay?

For HDB loans, $5,000 in multiples of $1,000 (or $500 for loans that started before April 2012). For bank loans, it varies. This depends on the bank you borrow from, so check your LO for more specific details.

Is paying off my mortgage early always the “safe” choice?

It gives a sense of peace and certainty, but certainty isn’t the same as optimal. Once the money goes back into paying off the mortgage loan, it is illiquid, and if you need cash urgently, it may mean selling or renting the house, or even borrowing again. If liquidity matters more to you than a better guaranteed return, keeping the cash accessible can be the more prudent choice even when the pure interest-rate math favours prepaying.

This article is for general educational purposes and does not constitute financial advice. TheBoringCFO is not a licensed financial adviser.