Use savings to pay mortgage or fund home renovations after baby?

[ZestyLime]

Hi, looking for advice on what to do with our current savings. Me and my husband have two differing views. We bought a house 3 years ago that needed a fair bit of work and so far have been doing a mixture of doing it up and putting some money away in our cash ISAs.
We both did a lot of overtime up until recently as I have just had our first baby and my husband's work is now no longer offering any more overtime to cut costs.
We have about £108k left on our mortgage, this is split into a larger mortgage which was ported from our old house and a smaller bit we borrowed at the time we bought the house to allow us to use our savings to do work on the house immediately.
We still have the kitchen/diner to do and I would like the garden landscaped eventually but in no rush for the latter.
We are fortunate we have enough money to do these which is what my husband wants to do. But I would like to use the money to pay off the larger part of of our mortgage (~85k). My reason for this is it would give us more financial security and we could use the money we dont have to pay monthly on that part of the mortgage to save for the rest of the renovations which are livable for the next few years. The mortgage rate is currently 4.9% which ends next year.
My husband wants to carry on paying the mortgage and plow the savings into renovations. My worry is the money will be used up and we won't be able to save that amount again especially going part time and him not having any overtime. I'm not that financially savvy and can't always wrap my head around the pros and cons of either over time. I know we are very fortunate too but we are just a bit clueless. I feel like we've dropped really lucky to have these choices.

The way mortgages are going at the moment, I’d pay off the mortgage. It’ll save you money in the long run by not paying the interest on that amount. However, how badly does the kitchen need doing? The garden you could do yourself, but I’d hate to live in a kitchen I hated.

Pay off mortgage, overpay when you can then you should have a decent sum you are no longer spending that can go on renovations with little financial worry. Paying off a mortgage can give you a lot of psychological peace.

I agree with @somanychristmaslights - this would depend for me on how bad the kitchen is.
But even if I decide to do the kitchen, that would still leave you the bulk of the money to pay down the mortgage.
So I'm going to say I'd do both - do the kitchen up AND pay down the mortgage.

Thank you for your reply. This is what I said to my husband about saving on the interest in the long run. Tbh the I hate the kitchen but it works and is clean. I can live with it but no longer than a probably 4 years.

Thank you for your replies. It gives me a bit of confidence I do know what I'm doing. I suppose the next question is do we pay that bit off before the product ends next year and pay the penalty fee (which is less than the interest we would pay over that time) or do what my husband suggested and wait til the product ends to avoid the penalty fee (is this how it works?) and in the meantime save a bit extra for emergencies, e.g his care is oldish and he's worried it could need repairs or he'd need to buy another second hand car in the next year if it goes kaput.

I’d do the renovations personally, you spend so much time in your house I would want to optimise my enjoyment of the environment

Surely a kitchen and some garden landscaping won’t cost £85k? So you can do both to a degree. Do the kitchen and then still pay a large amount of the mortgage off.
Can you even pay more than 10% off in a year? Thats a common limit.

Keep some £ cash.
Sounds like kitchen is a,want not a need.
But up.to you.
Adult decisions. you decide what is important between you.

I suppose the next question is do we pay that bit off before the product ends next year and pay the penalty fee (which is less than the interest we would pay over that time) or do what my husband suggested and wait til the product ends to avoid the penalty fee (is this how it works?) and in the meantime save a bit extra for emergencies,

Generally - but DO check with your individual mortgage - but usually you can overpay up to 10% of what you owe, without penalty over a year.
So I would do that anyway, then remember you can also be earning interest on what you have saved, so don't forget to put that into your calculations on interest saved vs penalty fee.

You should talk to a mortgage broker.
You will normally get a better interest rate when you own a higher % of the value of the house (or are borrowing a lower %) so that is something to factor in too.

I'd definitely get a mortgage broker to run your individual figures. Also, remember you don't have to do one or the other - you can have your kitchen, keep some day to day savings and pay a big chunk of your mortgage down.

I would pay off whatever you can pay off the mortgage without penalty now (usually 10%). Start getting quotes for the kitchen now so you can make decisions based on real numbers. The pay off however much you like when the mortgage ends. Make sure you always keep a decent emergency fund after paying down the mortgage and any renovations.

You're probably right, we do tend to overestimate cost as we are quite risk. adverse. I guess I was just thinking we'd need a bit of structural work to the kitchen/diner and our garden is quite steep so would need to build tiers and need a few trees removed and imagined this to cost a bomb.

Thank you!

I see the conundrum you want to improve your financial resilience by reducing your costs, your husband wants to keep financial resilience by keeping money for renovations.

I think there is probably enough to do a bit of both. Overpaying when you are at 4.9% makes more sense than savings so I would look at setting up a regular overpayment off the mortgage.

I would go through your finances and work out what you need to cover basic living costs for a typical 3 month period including some annual costs such as insurances and keep this in savings as a back up. I would then go around the house and list anything that may need doing or replacing in the next 5 years. It will give you an idea of how much money you might need to be able to have accessible or save over this timeframe. You can then start identifying which bit of the savings are needed to be kept for renovations and which bits would be better paid off the mortgage. Then repeat this process every 6-12 months. This should allow you bring down the mortgage balance but also do renovations as and when they are needed

You’re in the house day in day out. Especially if you’ve got kids and work part time. The sooner you renovate the sooner you get the benefit. And you’re talking 6 months. Where as paying the mortgage off isn’t a short/medium term goal. It will presumably take years to feel the benefit of that. Are you really in a position to wait so long?

as long as you keep an emergency fund is renovate. But keep your eye on the bigger picture and don’t renovate to what design suits a toddler…. Renovate for a design that suits tweens / teens to get the longevity.

Good point, thank you x