Pay Down Mortgage vs Invest (Singapore, 2026)
This is not just “stocks return more”. It’s: can you survive volatility without breaking, and does prepaying meaningfully reduce your fragility and stress?
Decision checklist
- Buffers: Do you have 6–12 months of runway without touching investments?
- Rate: What is your effective mortgage rate after promo ends and fees?
- Horizon: Can you hold investments for 5–10+ years without needing the money?
- Temperament: Would you panic-sell in a -30% drawdown?
- Optionality: Would lower debt unlock better life options (job moves, upgrades, risk-taking)?
Worked example (illustrative)
| Choice | Assumption | Outcome lens | What to watch |
|---|---|---|---|
| Prepay mortgage | Rate 3.0% effective | ≈ “risk-free” 3% return + lower fragility | Liquidity reduces (unless you can redraw) |
| Invest | Expected 6%/yr, volatile | Higher expected wealth over long horizon | Sequence risk + behaviour risk |
| Hybrid | Split $500/$500 | Balanced: some de-risking + some upside | Requires discipline (don’t stop investing) |
Pay down mortgage vs invest: the real comparison
- Paying down mortgage is a risk-free “return” equal to your interest rate (after fees), and it reduces fragility.
- Investing has higher expected return but real volatility — and can fail exactly when your cashflow is stressed.
- In Singapore, your decision is often three-way: pay down mortgage vs invest vs keep liquidity (buffers).
Decision rules (simple)
- Prioritise buffers first: if a job shock would force a sale, liquidity beats optimisation.
- Pay down mortgage if your effective interest rate is high, you have low risk tolerance, or cashflow fragility is your main problem.
- Invest if you have stable buffers, long horizon, and you can hold through drawdowns without panic-selling.
- When rates are low, the “math” favours investing — but the behavioural risk still dominates for many households.
Run the numbers (recommended)
FAQ
Is paying down mortgage always better than investing?
No. Investing may have higher expected return, especially over long horizons. But paying down mortgage is a guaranteed reduction in risk and cashflow pressure. Many people under-estimate behavioural risk and over-estimate their ability to hold during drawdowns.
Should I pay down mortgage if my rate is low?
If your buffers are strong and you invest consistently, investing can make sense. If buffers are thin or you’re likely to panic-sell, paying down debt can still be the better ‘real’ outcome.
What about CPF OA — should I use it to pay mortgage faster?
CPF OA has an opportunity cost (and accrued interest matters when you sell). The right choice depends on your risk tolerance, liquidity needs, and whether using more CPF reduces future options.
What’s a practical approach?
Use a rule: keep 6–12 months buffer, then split surplus between (1) a small principal prepayment and (2) automated investing. Rebalance only annually, not emotionally.