Mortgage overpayment versus home improvements - how do you decide?

[InWithPeaceOutWithStress]

i was wondering how people weigh up financial decisions. There are lots of things I would love to spend / save money towards (for example new kitchen, extension, underfloor heating, eco upgrades such as solar panels and heat pump) but I am also keen to overpay on my mortgage as the interest I’m paying each month is just horrific. How do you decide where your spare money goes each month?

After bills and everyday spending I have perhaps £500 to play with. I have approx £6k in savings. I feel compelled to put everything towards mortgage overpayments and let go my desires for all those upgrades although is that a bit dull?

We have chosen renovation but ours is a doer upper so we knew that was the deal.

if your renovations will make the house more liveable, more comfortable, or more valuable I would absolutely do them if you’re planning to live there a long time.

Does it work out better to take out a low interest loan (if these still exist) and spread the cost of renovations so you put half into overpaying the mortgage with the higher interest and the other half into paying off the home improvements loan?

Do you only have £6k in savings? In which case I’d not use it on either, I’d make sure I had a good emergency fund first.

Later on, if the mortgage is manageable and already on a current interest rate (ie you’re not still fixed on a low interest rate with a big increase to come), I’d probably do 50:50 - half the savings towards overpayment and half saving towards something specific.

It depends on circumstances really. There is nothing wrong with wanting to improve your home and make it a lovely place to live. I often read posts on here where people are obsessed with being mortgage free and will live very frugal lives to make it happen and they often sound miserable. I'm not suggesting you are in any way miserable OP but I think there is probably a middle ground

We split it, some into mortgage overpayment, some into reno funds. It’ll take longer to pay the mortgage but we aren’t storing up problems that could become worse over time. I do wonder if some posters on here finally pay off their mortgages to find the houses are falling down around them as they’ve spent no money on upkeep!

Yes, just a little over £6k. I feel secure in my job so not too worried about needing to cover lost income. I was previously hoping to save £10k but it seems a waste if I’m saving money that won’t be used. What constitutes an emergency that I would allow myself to dip into that fund?

That sounds sensible. I did recently apply for an interest free credit card and they gave me £6k for 20 months, I could do something with that. Tricky though as these things make sense to do together (solar panel and heat pump + new flooring and underfloor heating + new kitchen).

I took out £20k with first direct when interest rates were only 3.3% over 7 years it's 'only' £326 a month. But I'm mortgage free as I paid for a doer upper with an inheritance rather than have a mortgage and a nicer house.Getting the kitchen, bathroom and boiler etc done like that worked out cheaper but interest rates have changed since then.

Its going to depend on what you already have in the home, as a big part of it.

I've looked round some homes where there is literally a sink and a freestanding cooker. In that case, redoing the kitchen would take priority.
OTOH, when people link to houses for sale on MN for one reason or another, it is pretty common for people to say "It needs a new kitchen and new bathroom" when there is clearly nothing wrong with either. In that case, I'd be paying down the mortgage.
If you were talking about putting in a 2nd bathroom, then it makes sense to do that before your kids become teens, so they get the use out of it. No point in looking to do that after they've left home.

We were really lucky and had a tracker flexi mortgage at 0.25 percent above base.

Borrowed 75k for 25 years and if we wanted to draw down on it we could - so long as the balance didn't go above 75k. The only deadline was the end of term when we had to repay it.

So, we overpaid for years. Drew 18k for our conservatory and then another 20k for a new roof and windows. We made sure we had repaid it by the term end.

3 to 6 months of bills/ expenditure. In case of redundancy, illness, burn-out. Or some to pay for new boiler, car repair, major vet bill etc.

How much is sensible depends on job security, company sick pay, any critical illness cover, cynically whether you have family who’d bail you out, etc.

I didn’t have much savings before covid - 2 incomes and DH and I work in very different sectors in very different roles, so chances of us being both made redundant at the same time were remote. But along came covid and in the early days I thought we’d both be losing our jobs. I vowed to up my savings after that.

What's your mortgage interest rate at the moment? Anything over 5% I'd prioritise overpaying the mortgage. Don't touch the savings though, just put any spare money into mortgage. Obviously check your max repayment amount if there is one so that you don't get penalised.

Mortgage rate is 4.38% for 2 years.

I’d do 2 years of overpayments and then start looking at renovations. That gives you time to live in the house, work out priorities and planning and also give yourself a buffer.

During those 2 years I’d also look into things I could DIY like painting and do that.

Thanks, this makes a lot of sense. It’s a case of properly thinking through the value of various things and what is really needed for quality of life.

Although the ideal would be a clever solution like @Feelingstrange2 found.

That makes sense. I’ve painted almost the whole house since moving in a month ago. OH has been putting up shelves etc. The only immediate thing that really needs doing is improving the loft insulation. There are lots of nice to haves like replacing the crappy carpet and making the kitchen more functional (it’s incredibly small with really annoying corner cupboards and lack of counter space) but it’s not a necessity.

Then you should be able to beat your mortgage rate with a savings rate so definitely don’t overpay the mortgage.

The product we had was in the era of offset mortgages where a savings account didn't receive interest but did save interest on the mortgage run alongside. Barclays was big on these.

Our product was a sort of hybrid and I fell into it as I couldn't be bothered to remortgage as my son was about to be born so just picked the cheapest base rate tracker and it had this facility to drawdown again built in. This was 1998! Then it proved so useful we let it run, then rates fell so we were paying about 0.5% interest and so we increased payments and never remortgaged again - paying it off at 48. It was with Abbey National (later bought out by Santander).

We were very lucky.

Although our endowment which was supposed to pay off 52k of it only paid out 30k when it finally matured. Win some. Lose some. I guess

How much interest is your £6k making you?

tbh if I had £500 spare at the end of the month, I’d be tempted to put £100 extra off the mortgage each month. Do this by standing order so it becomes habit. It’ll slowly chip away £2400 in your two years at reducing the mortgage, before your rate changes. By then you may find a different gov and different interest rate.

the other £400 x 12 will give you £10480 to use on some improvements.

if you’re set on having solar etc. do that first - as logical this would reduce your bills and outgoings.

then move onto other home improvements, underfloor heating and different kitchen

I am in no rush to pay my mortgage off, life is too short. Payments are comfortably within my affordability, I have insurance should the worst happen, and it'll be paid off well before retirement so I have no rent/mortgage when my income reduces, and an asset.

Outside of that, life is for the living, I am young and healthy now, I have children now, I need flexibility in my income to actually live life. Some upgrades we've had the cash to do, others we've put on the mortgage.

Hi OP, I have a similar financial situation to you. Around 6k savings, 500 left over at end of month. I always seem to have a personal loan on the go. Just paid one off, and now just borrowed 10k over 5 years to get a new bathroom put in and a wood burner. I needs loads doing in my house but just accept that it's a case of doing one thing at a time slowly. I don't want to touch my savings, asi may need it for an emergency.