At the moment it is wise to keep finances flexible
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THERE are a number of things to consider if you are thinking about using a lump sum to pay down or cannibalise your mortgage.
The first is the need to consider staying financially flexible in these uncertain times. With job insecurity such a big issue for people in the private sector at the moment it makes sense to stay flexible.
If you have a lump sum it makes sense to keep it as an emergency fund. Such a fund should be a priority for anyone who depends on earned income to live.
An emergency fund should be readily available to meet unexpected expenditure -- for example, redundancy. Without an emergency fund, you may be forced to incur credit card debt that could take you many years to pay off and end up costing you much more in the long run.
You should never be in the position where you have to buy necessities like food, transportation, and housing on credit.
Also, anyone on a fixed-term mortgage will pay a penalty if they want to pay off a lump sum on their mortgage.
Lenders regard paying off a lump sum as breaking the contract and can hit you with a penalty charge that can be as high as €17,000.
On the other hand, if you are one of those people who are likely to spend a lump sum rather than leaving it on deposit in the bank, then you might be better off using it to pay down your mortgage.
Irish Independent
