In financial planning, sometimes we will be call upon to make some calculation.
I think many felt that it has to be always rather personalized but perhaps you don’t have to always calculate it as rules of thumb can help in our planning already.
One very common one is this math that we sometimes come across.
A lot of us have mortgage. They usually is 25-30 years but when you ask this question you might be still far or halfway there.
Most of you felt that with interest rate low (probably not what you are thinking in 2022/2023!), you do not want to pay off your mortgage.
Why should you pay it off when you can grow your money at 10-15% a year?
Well most end up not able to do that, invest a small portion of it, because… life takes place and decisions take a back seat.
Most of our financial security may be build on how fast we can build up in our savings to be equivalent to the mortgage amount. If we have an equivalent amount then we have the optionality of still paying mortgage, or paying it off if we want to have a peace of mind.
If you have a financial adviser, you would delegate your financial adviser to give you the answer: How long would that happen.
But as I was mopping my fxxking 5-room HDB floors, I thought about it:
- With MSR and TDSR, typically the mortgage is either 30-40% of your gross salary tops.
- Yes you will have some spending aside from your mortgage.
- How much you build up your wealth is a function of your savings/surplus rate and the investment rate of return.
If so then isn’t the answer pretty fixed?
So I got the LLM to model this and eventually we came up with this Amount of Mortgage Paid as a % of Salary x Savings Rate Matrix:
You can vary the tenure of the mortgage, interest rate and also the investment return.
I think most mortgage is around:
- 25 years
- 40% savings rate tops.
It takes about 8-9 years to reach the point where what you save is equivalent to your mortgage. (30% of mortgage).
A person who saves 25% instead of 40% would take 10-11 years.
If you are an investment bank still staying in a HDB flat, have a high 80% savings rate, you may reach 4-5 years. You take a look at low % of mortgage and high savings rate %.
I think these rules of thumb are good enough for me to consider about planning. I don’t need exactly precise because that is not too useful.
What’s more important is to figure out
- The impact of prudence (low mortgage %)
- The impact of conscientious savings and investment.
You would reasonably still look at 10 years of your working life savings up an equivalent of mortgage. You can have the peace of mind that if both lost your job, you can use part of the money to reduce the stress on your cash flow. Don’t have to pay off all but some would help to reduce the mortgage cash flow.
Finally, what happens if every 4 years, you take the money to lighten your mortgage?
This one is not without friction but there may be penalties for that. But I suppose some on bank loans are refinancing or repricing around that time frame so that may not be so hard.
You can use the Side by Side to see the difference.
I think it doesn’t make much of a difference la.
Here are your other Higher Return, Safe and Short-Term Savings & Investment Options for Singaporeans in 2026
You may be wondering whether other savings & investment options give you higher returns but are still relatively safe and liquid enough.
Here are different other categories of securities to consider:
| Security Type | Range of Returns | Lock-in | Minimum | Remarks |
|---|---|---|---|---|
| Fixed & Time Deposits on Promotional Rates | 4% | 12M -24M | > $20,000 | |
| Singapore Savings Bonds (SSB) | 2.9% – 3.4% | 1M | > $1,000 | A good SSB Example.” data-order=”Max $200k per person. When in demand, it can be challenging to get an allocation. A good SSB Example.”>Max $200k per person. When in demand, it can be challenging to get an allocation. A good SSB Example. |
| SGS 6-month Treasury Bills | 2.5% – 4.19% | 6M | > $1,000 | How to buy T-bills guide.” data-order=”Suitable if you have a lot of money to deploy. How to buy T-bills guide.”>Suitable if you have a lot of money to deploy. How to buy T-bills guide. |
| SGS 1-Year Bond | 3.72% | 12M | > $1,000 | How to buy T-bills guide.” data-order=”Suitable if you have a lot of money to deploy. How to buy T-bills guide.”>Suitable if you have a lot of money to deploy. How to buy T-bills guide. |
| Short-term Insurance Endowment | 1.8-4.3% | 2Y – 3Y | > $10,000 | A good example Gro Capital Ease” data-order=”Make sure they are capital guaranteed. Usually, there is a maximum amount you can buy. A good example Gro Capital Ease“>Make sure they are capital guaranteed. Usually, there is a maximum amount you can buy. A good example Gro Capital Ease |
| Money-Market Funds | 4.2% | 1W | > $100 | Suitable if you have a lot of money to deploy. A fund that invests in fixed deposits will actively help you capture the highest prevailing interest rates. Do read up the factsheet or prospectus to ensure the fund only invests in fixed deposits & equivalents. |
This table is updated as of 17th November 2022.
There are other securities or products that may fail to meet the criteria to give back your principal, high liquidity and good returns. Structured deposits contain derivatives that increase the degree of risk. Many cash management portfolios of Robo-advisers and banks contain short-duration bond funds. Their values may fluctuate in the short term and may not be ideal if you require a 100% return of your principal amount.
The returns provided are not cast in stone and will fluctuate based on the current short-term interest rates. You should adopt more goal-based planning and use the most suitable instruments/securities to help you accumulate or spend down your wealth instead of having all your money in short-term savings & investment options.
Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.
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Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Fee-only Wealth Advisory Firm Providend. All opinions on Investment Moats are his own and does not represent the views of Providend.
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