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Yes, our mortgage advisor recommended a certain buffer amount in savings, and it was quite a lot. Either one year or 18 months, and I think that was combined in

Yes, our mortgage advisor recommended a certain buffer amount in savings, and it was quite a lot. Either one year or 18 months, and I think that was combined income. That was just to ensure the mortgage could still be paid for a while if we both lost our jobs. I'm personally planning for an exit strategy which will see me working for myself in about 6 months time. I have roughly one year's take-home pay and will ideally have 18-24 months by the time I quit.

rahimnathwani 9y ago
It sounds like the mortgage advisor encouraged you to borrow a larger sum, so that she/he could get a larger commission. There's no need to keep that much money in the bank just in case you lose your job and can't pay your mortgage. Most lenders (at least where I'm from) will arrange a payment holiday if you tell them you've lost your job. After all, they benefit by earning more interest whilst you're not making payments. Of course, there are many other good reasons to want that much liquid cash in the bank.
- milesvp 9y ago
  1 year in the bank (CD/savings) is for multiple reasons. Mostly it's for that really nasty scenario where there's a major recession leading to household job loss, when it can be particularly hard to find an equivalent replacement salary. And cash equivalent is important because selling assets in a down market is doubly expensive. Worse is a down market may make the mortgage lender even more likely to foreclose in the hopes of extracting some short term gains to offset losses in other investments. So you risk a losing your equity just by missing a single payment. I certainly don't drop every dollar into my mortgage every month, it's just not worth the risk for a potential 4% return on investment.
  - rahimnathwani 9y ago
    I don't know if these exist in other countries, but some banks in the UK offer an 'offset mortgage', where any balance in a specific current account at the same bank deducted from the loan amount when calculating interest. The last time I looked, they were a little more expensive than regular mortgages, but would be worthwhile for someone who keeps 6 months or more of mortgage payments in their current account.

rahimnathwani 9y ago

It sounds like the mortgage advisor encouraged you to borrow a larger sum, so that she/he could get a larger commission. There's no need to keep that much money in the bank just in case you lose your job and can't pay your mortgage. Most lenders (at least where I'm from) will arrange a payment holiday if you tell them you've lost your job. After all, they benefit by earning more interest whilst you're not making payments. Of course, there are many other good reasons to want that much liquid cash in the bank.

milesvp 9y ago
1 year in the bank (CD/savings) is for multiple reasons. Mostly it's for that really nasty scenario where there's a major recession leading to household job loss, when it can be particularly hard to find an equivalent replacement salary. And cash equivalent is important because selling assets in a down market is doubly expensive. Worse is a down market may make the mortgage lender even more likely to foreclose in the hopes of extracting some short term gains to offset losses in other investments. So you risk a losing your equity just by missing a single payment. I certainly don't drop every dollar into my mortgage every month, it's just not worth the risk for a potential 4% return on investment.
- rahimnathwani 9y ago
  I don't know if these exist in other countries, but some banks in the UK offer an 'offset mortgage', where any balance in a specific current account at the same bank deducted from the loan amount when calculating interest. The last time I looked, they were a little more expensive than regular mortgages, but would be worthwhile for someone who keeps 6 months or more of mortgage payments in their current account.