Renovate Your Home or Pay Down Your Mortgage?
It’s a question many Kiwi homeowners face: should I spend my savings updating the house—or chip away at the mortgage? The answer depends on your priorities, the state of your property, and how you define a good return on investment.
If your motivation is purely personal—say, you're dreaming of a home theatre or a scullery kitchen—then go ahead and renovate for lifestyle reasons. But if you’re weighing this up as a financial decision, read on for a more strategic breakdown.
1. Will Renovating Add Real Value?
Renovating with the hope of increasing your home’s value is common, but it’s not always straightforward. The risk? You may not know whether a reno has added value until you sell—and even then, buyer decisions are influenced by emotion as much as logic.
That said, savvy updates can boost your home’s appeal and avoid value-eroding buyer objections. Think back to when you purchased: what aspects made you hesitate? What would’ve made the home feel more “complete” or worth more?
Renovations that tend to offer good returns:
Upgrading the front door
Adding a wooden deck
Refreshing the bathroom
Minor kitchen remodels
Updating insulation or cladding
Renovations that usually don’t pay off:
Overly niche or bold design choices
Swapping carpet for hardwood (or vice versa)
High-end kitchen appliances that date quickly
Extensive landscaping that’s hard to maintain
Keep in mind that some buyers won’t touch a property that “needs work”, especially in the mid-to-upper end of the market. Even small updates might make a big difference in how many offers you receive.
However, if you have kids or pets and are planning to stay for several years, some wear and tear is inevitable. A fresh reno might look tired again by the time you sell.
2. Could Renovating Improve Your Loan Position?
If your mortgage is currently over 80% of your property’s value, you're likely paying higher interest rates. One way to bring your loan-to-value ratio (LVR) down is to increase the value of your home through renovations.
Example:
Let’s say your home is worth $500,000 and your mortgage is $415,000 (LVR = 83%). You spend $10,000 on renovations. A new valuation shows the home is now worth $520,000, bringing your LVR down to 79.8%.
That small shift means you could move to a lower interest rate—potentially saving $1,000 or more each year in interest. On the other hand, if you’d simply put that $10k into your mortgage, your LVR would still be above 80% (around 81%).
Note: Most banks won’t reassess your property’s value within the first 6 months of purchase. Some will let you drop to a lower rate immediately after that; others may make you wait until the fixed term ends. It pays to work with a mortgage adviser early to match the right lender to your renovation strategy.
3. Or Should You Just Pay Down the Mortgage?
On the flip side, putting money directly into your mortgage has a guaranteed return: less debt and less interest paid long-term.
Let’s say you have a $400,000 mortgage and choose to use $10,000 to pay it down. That’s $10k less on which interest accrues for the rest of your loan term. Even modest savings—like $250 per year—compound over time.
Of course, that same $10,000 could have been used to improve your home and push the resale value up by far more. It’s a matter of risk tolerance and timing. Reducing debt is certain. Capital gains are not.
4. The Lifestyle Factor: What’s It Worth to You?
This is where money meets meaning. Some renovations are less about increasing value and more about increasing joy. Maybe you’ve always wanted a walk-in wardrobe or need better storage as your family grows.
These changes might not pay off in dollar terms, but they could dramatically improve how you live in your home. Just be aware that personalised upgrades may not appeal to every buyer, which could limit your resale price.
On the other hand, if you’re only going to renovate just before selling, you miss out on enjoying the benefits yourself. There's often a balance to be struck.
The Best of Both Worlds?
One popular strategy is to focus on paying down your mortgage early, then doing renovations closer to when you plan to sell. This way, you:
Maximise interest savings early in the mortgage
Reduce debt risk
Keep renovations fresh and appealing for sale
However, if your reno will bring real day-to-day benefits and potentially improve your LVR or long-term value, it might be worth moving sooner.
Final Thoughts: Weigh Your Priorities
There’s no one-size-fits-all answer here. Ask yourself:
Do I want to improve my living experience now, or secure my financial position first?
Can the renovation boost my home’s valuation enough to improve my loan conditions?
How long do I plan to stay in this home?
Whatever you decide, make sure it aligns with your goals—not just the numbers.
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