What to do with small windfall

[Bobbybear10]

I want to know who you think is being unreasonable in this situation.

You have a £300,000 mortgage.

You have a property that has scope for improvement and you would be able to get a small income from it if you could afford to make the said improvements.

The property is in fairly good condition but has a few things, like most places, that’s could be done that would add value if you were to ever sell.

Person A wants to pay off as much of the mortgage as possible and then pay it off sooner/have a smaller monthly payment so could save money and improve the house eventually (would take a few years to save enough)

Person B wants to invest all the money into the property which would add value and bring in roughly £17,000 a year (could be more, might be less) the work would add about £200,000 or so to the selling cost of the property (obviously this depends on house prices not crashing)

Who is BU and which would you do, or would you do something completely different?

Is the mortgage affordable at the moment? Are your jobs secure?

£200,000 is not minor works

Mortgage is affordable but not much/nothing left over at the end of the month to save or buy treats etc. Although if we had a big breakdown of car/washing machine etc we could stick it on a credit card and pay it off within a month.

Jobs are very secure, although may want to move departments within the business but that wouldn’t really affect pay or job security.

I'd go with person A

I'm not sure who is being U but I feel that you're Person B.

You say that you could make money a small income from the property but is it the same property as the one you live in? The one with £300,000 mortgage?

How much is the house worth? How long left on the mortgage?

£200,000 is minor works if you knew the property. It’s not that it’s a massive house just that the £200,000 would only pay for a couple of things that could be done iyswim.

Person A is 'right but i would be person B

Either way I'd go for paying off your mortgage as soon as possible because that's the safer option.

It would take 15 years plus to "repay" the windfall.

How long would it take to save an amount that would be enough to do the works?

Is a compromise available? Some off mortgage, some works done.

You may have early repayment charges on the mortgage.

Sell in future, invest, pay off more off mortgage.

I'm just going on by if someone I know had waited and done roof repairs (old property) they would have got several hundred thousand more than what happened. Of course this is only one example.

Depending on the amount can you do both to an extent? I’d want to bring down the mortgage, but can some of the improvements be done? I assume it’s not the family home if it can also generate an income?

Actually I’m person A.

I think waiting to improve would be better but can see that having an income would help us like be comfortably and also pay a bit extra off the mortgage each month.

The house is worth a fair bit more than £300,000 but don’t really want to say unless really necessary.

Long mortgage at the moment but overpaying a small amount each month (very small overpayment!)

I'd go with person A personally. Since I'd rather have the guaranteed saving straight away. Not sure how improving the property would bring in an income (rental? Air BnB) but it is probably a less secure income than just reducing mortgage.

Is it possible to use half of the money to pay down the mortgage and the other half for home improvements? Compromise? £300k is a pretty big mortgage

That said neither proposition seems particularly unreasonable.

I would definitely pay off the mortgage. It would take years to recoup the cost of the work through the additional income. Interest rates are likely to rise and who knows what will happen with Brexit coming up.

Obviously, check if you have any fees for overpaying the mortgage. If you're on a 2 or 5 year fixed rate deal it might be sensible to wait for that to end before doing a massive repayment (ie just pay the maximum amount you can without incurring extra fees for the times being).

B

Yes, if we went with person A we would slowly do improvements a bit at a time but would probably take a couple of years till we could afford to do anything much.

At the moment we don’t really plan to sell. We think of it as our forever home but you never know what might be around the corner! So I suppose the adding value doesn’t matter at the moment but more that if something unforseen happened having a property worth more would be better?

I'd probably do neither and buy an extra property and rent it out.

Do you mind my asking, how much would you have to spend in order for the property to be £200K more valuable? Are you talking about something like an extension that you could let out?