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ASSI's Guest bloggers

Pay down mortgage or beef up emergency fund?

Friday, September 2, 2016

Dear AK - 

Thank you for all your sharing, I have learnt so much from your blog.
 
I have one quick questions that I am not sure if you have touched on previously.
 
My situation is that I am expecting to receive a lump-sum payment by end of this year, an amount that while would be meaningful for me, and around 12 months my monthly expenses.
 
I currently have a separate emergency fund allocation of 4 - 6 months monthly expenses buffer.
 
I am wondering if it would make sense for me to use this lump-sum payment that I would be receiving to pre-pay my mortgage. 
 
Or shall I keep it into an emergency fund account (One UOB/ OCBC 365)
 
Thanks for your thoughts.
Best regards
 




Hi,

If the interest rate on your home loan is much higher than the interest rate you could receive from UOB ONE or OCBC 360, then, it makes sense to pay down the home loan.

I don't know how old you are but if you are older than 30 years old, you might want to beef up your emergency fund. See: http://singaporeanstocksinvestor.blogspot.sg/2015/05/how-much-should-we-have-in-our.html

Best wishes,
AK



We want to remember that there is a cost for holding liquidity but because it is important to have liquidity, bearing some cost to do so is acceptable.

We are lucky that in the current low interest rate environment, it is also less costly to do so.

When will it rain again? You tell me.

Related post:
UOB ONE or OCBC 360?

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