Pay off mortgage or home improvements?

[howdoIdealwiththisone]

I am changing a couple of facts here since I've already been outed in RL once this month!

I have recently set up my own business. I am literally into the third month of trading but so far we are doing really well and my income should be twice what it previously was. There are particular reasons though why it has been busy for this initial period and I don't expect to continue earning at this level indefinitely. I would hope to have increased my income by fifty percent though.

Prior to setting up my own business we had been contemplating my redundancy and thAt would have meant selling the house. All our money is tied up in the house. It is quite a high value property in terms of location, size etc but it needs lots of work doing to it. If we had to sell in a hurry we would struggle to get maximum value from it.

Mortgage is about 45 percent of the value of the house. But that's still a big amount in financial terms.

I am inclined to put all of the excess money into paying off chunks of the mortgage. If we had a smaller mortgage then even if the business didn't work out we could survive on DHs income. DH thinks we should spend it on home improvements. Firstly because we see benefit from that but also in case we have to sell the house so that we maximised our money from the sale. Once we put money into the mortgage we can't get it back.

I can see both arguments. What would you do?

Half & half. Proritise the improvements that will add to resale value.

I agree half and half and do the work once you have saved for it. I would also spend money where you can make money. Our house has a ceiling value due to the road it's on. I have always been very careful not to spend more than I would see back on it as it's not my forever home.

this is our forever home. And the things that need doing are add value things such as new kitchen, new bathrooms.

I'd pay off the mortgage first as you are paying interest on that debt.
You can do the home improvements later - you may even change your mind on what they will be as fashions/technology change so the kitchen or bathroom you want now (which is almost certainly what is in fashion this year) will probably not be the one you want in 5 or 10 years time when they will seem dated.

If it's a forever home then you will not be adding value by adding a new kitchen cos you're not planning on selling & fashions in kitchens will have changed by then! Adding value would be something like an extension or central heating if there wasn't any.

Good point. Well the windows need doing, that would be adding value. We would also like to extend the kitchen.

The problem is that we have in the back of our minds the fact that if the business is not a success we would probably look to sell the house and buy somewhere smaller. Putting in a new kitchen and bathroom would put us ina better position to sell if we needed to. At the moment my kitchen doors fall off if you open them which isn't a particularly desirable look!!

We worked out last night that if we overpay on the mortgage we would save £20k

What if you are unable to sell the house anyway after the improvements? You would have no income and a mortgage to pay. In this market you just never know.
I would pay the mortgage and start saving for the improvements.

What you need is an offset mortgage if you are in a position to remortgage in the short term. This allows you to offset your savings against your mortgage i.e allows you to access your savings should the need arise. I would hold off home improvements personally until your finances are in a more stable state - you don't sound as if you feel secure if you are discussing the possibility of selling your forever home if your business doesn't work out!

It's a bit all or nothing. I've left a job with a regular income to set up in my own. It's very early days and I've billed my clients a good amount in the first few weeks. Whether they will pay the bills is however a different issue!

I agree an offset mortgage would be a good idea since I will also have my tax sitting around for the year before it is paid.