At first reading this seems like an attractive thing to do. After all, there is nothing like shedding a bit of weight off the home mortgage and freeing up some monthly cash flow. But is it financially correct? The most common type of mortgage finance is the traditional repayment mortgage, also called the annuity mortgage. At the start of 2006 the European Central Bank (ECB) base rate stood at 2.25%, and thanks to the external intervention into the Irish market by Bank of Scotland in August 1999 mortgage margins (ie, the gross profit added by lenders) have typically been squeezed to between 0.8% and 1.5% above the base rate.

Accordingly, for most borrowers this positions variable mortgage rates at just over 3% - 3.75%. These rates are likely to increase fractionally if, as is expected, the ECB base rate lifts to 3% in the near future, adding another 0.75% and pushing variable rates to between 3.8% and 4.5%. Don't assume that rising interest rates will peak the ECB rate at a 3% base because the ECB rate could go higher.

When you take a cash lump sum and reduce your variable rate mortgage, thereby avoiding a cost at the borrowing rate, it is equivalent to investing the money, tax-free, at this rate. This is a better rate than leaving the money in cash deposit and paying DIRT, and comes with the added benefit of reducing your monthly repayments. However, the question of whether or not you should sink your SSIA maturity in your home mortgage really comes down to the relative strain placed on your monthly income by those mortgage repayments.

As a general rule, if your mortgage repayments are eating up more than 40% of your net monthly income, then this option is worth considering. As interest rates rise, more borrowers will find themselves diverting larger chunks of cash into jumbo mortgages taken out when interest rates stood at historical lows. As a result, stretching out mortgage terms and reducing the debt by cash injections will become more common practice.