Emergency fund to pay for the house

After the Monthly Budget has been drawn up and all income and expenses are cleared, it is important to give the money you have saved a good purpose!

The constitution of an emergency fund is one of the ways in which you can choose and that, today, has proved to be increasingly essential. The scenario we are currently experiencing leads us to reflect on the importance of having savings to face unexpected situations, whether they are health care, repairs to the house or car, loss of income or even unemployment.

You can also use the fund as a guarantee of compliance with your home loan, if the loss of income is high this is an expense that must always be taken care of. Failing to pay the mortgage loan sets a precedent that will give you confidence problems with the bank and that, ultimately, can lead to a process that jeopardizes your mortgage and title.

It is advisable that the emergency fund covers at least 6 months of fixed monthly expenses. Analyse your budget carefully and set a monthly amount that you can reserve for your fund. If you have already started doing so, you should continue, because the greater your savings the more safeguarded you will be for any future eventuality.

Let us look at a practical example:

Analysing the table below, it is possible to see that fixed monthly expenses are around € 600 and that savings are almost always over € 100. In this case, the amount of the reserve should be close to € 3600 and would take approximately 3 years to build, if € 100 is saved every month for the Emergency Fund.

If your Emergency Fund is already set up, you can explore the best way to apply that money. To do this, you should consult with your bank, as an Emergency Fund must be able to be used at any time as we do not know when to expect the unexpected. Therefore, you should consider opting for low-risk, high-liquidity financial investments.

With a solid and extended Emergency Fund, capable of covering 12 months of fixed expenses, you can choose yet another way to reduce your mortgage credit. This is being paid every month, it is true, but nothing prevents you, at any time, for you to pay an amortization.

Have you thought about talking to your bank and using savings to pay off part of the outstanding amount of the mortgage loan? Do you know how to do it and what are the implications? How much is paid in terms of commissions? How much interest is saved? We will prepare more information for you on this topic!

Carolina Carvalho – Management Team