Pay down mortgage or beef up emergency fund?

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?

Downsizing our homes for better financial health.

Hi AK,

My husband and i are in our late thirties. 

Right now we own a 5-rm hdb flat. 

We do not have children yet, but are planning to. 





We have plans to downsize our hdb to a 3-rm flat because:

1) there's only the 2 of us. 
Even if we have children, the size of a 3-rm flat is still considered ok.





2) we can pay off a bigger portion of our mortgage loan as the loan amount will be much lesser compare to our current one. 

We do not plan to buy a 3rm which is more expensive than our current 5rm. 

(However, we may have to take up bank loan as I have already used up my 2times hdb loan quota - one with my family before i got married and the current one.)





3) i have a couple friend who downsize their hdb from 5rm to 3rm, fully renovated it nicely and was able to pay off the housing loan in full. 

Now their income are purely for living expenses and savings/investments. 

That also gave me the idea of downsizing.





Please advise if there is anything which i may have overlooked and anything to look out for.

Thank you!

Best Regards
Blue

Hi Blue,

I like the Tiny House movement. 

Very often, people over-consume when it comes to housing. 

In a country where housing is so expensive like Singapore, over consuming on housing can really set us back financially, everything else remaining equal.





1. If you feel that a 3rm flat gives you ample space, then, you don't need any flat bigger than a 3rm flat. 

You might want a bigger flat but you don't need a bigger flat. 





2. If you would like to have a smaller mortgage, downsizing and downgrading definitely makes sense. 

Keep the monthly repayment for your new home loan the same amount as what it is for your current home loan and you will pay up the mortgage faster.





Alternatively, you might want a longer term loan, taking advantage of the low interest rates now and improve your cash flow. 

However, you should have the resources to pay down the loan rapidly in case interest rates go much higher.





3. To have a home fully paid means you have both control and ownership. It is an asset. 

As long as a home is not fully paid, we do not have ownership despite claims to the contrary. It is a liability.

Related posts:
1. My home is a hut in the sky.
2. Housing and my CPF money.