How much equity do I need to refinance?

Rates and Fees verified correct on October 25th, 2016

How does equity influence my ability to refinance my mortgage?

refinance mortgageWhen you choose to refinance your existing home loan, you should take into account the amount of equity you’ve built up in your home as this can determine your refinancing options.

Some refinance home loans reward lower loan-to-value (LVR) ratios with better interest rates if you have more equity, so it pays to find out how much equity you have before refinancing with a new lender.

If you intend to borrow more than 80% LVR ratio for the new mortgage, you might end up paying Lender’s Mortgage Insurance (LMI) again (even if you’ve already paid it on your original loan).

So although you may have found a good refinancing deal, refinancing may not be the best option if you have to pay LMI twice.

Read on to find out how much equity you need to refinance.

What is equity?

When you make payments towards the principal amount of your home loan you build up equity in your home. The equity is the difference between your home's value and what you have left to repay on your loan. This is the money you can expect to remain if you sell your home and repay your loan with the proceeds from the sale. For example, if you live in a home worth $750,000 and you still have to repay $250,000, you have $500,000 in equity. The equation for equity is given below:

Equity = property value - outstanding loan amount

How much equity do I need when refinancing?

Building equity in your home is particularly important if you plan to go down the refinancing path. Many loans come with a maximum LVR of 95%, which means you cannot borrow more than 95% of the value of your home. What this also means is that if you wish to refinance you have to have at least 5% equity in your home.

In order to qualify for a refinance mortgage, you should have at least 20% equity in your home.

Applying for a refinanced home loan with no equity is difficult unless you can get someone to go guarantor. Find out more about how you can refinance your home loan with little or no equity.

Remember that lenders look at your equity as a means to assess risk. The more equity you have, the lower risk you present to the lender.

Refinancing home loans comparison

Rates last updated October 25th, 2016
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Product nameInterest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
HSBC Home Value Loan - Resident Owner Occupier only
Enjoy the low variable rate with $0 ongoing fee and borrow up to 90% LVR.
3.55% 3.57% $0 $0 p.a. 90% Go to site More info
3.64% 3.64% $0 $0 p.a. 80% Go to site More info Essentials - Variable Refinancers Only (Owner Occupier, P&I)
A low-interest rate loan suited for refinancing with no application or ongoing fees.
3.59% 3.61% $0 $0 p.a. 80% Go to site More info
Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed ($150K+ Owner Occupier)
Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.
3.59% 4.42% $0 $375 p.a. 85% Go to site More info
ClickLoans The Online Home Loan - Owner Occupier ≤ 80% LVR
Enjoy a competitive interest rate when you have a deposit of at least 25%.
3.69% 3.69% $0 $0 p.a. 80% Go to site More info
Bank Australia Basic Home Loan - Variable (Owner Occupier)
A competitive variable that allows borrowers to borrow from a minimum of $100,000 and $0 ongoing fee.
3.59% 3.60% $0 $0 p.a. 95% Go to site More info

What if I don't have at least 20% in equity?

When you choose to refinance without at least 20% equity in your home, there's a good chance you'll have to pay LMI again. This is because you cannot transfer the existing LMI to the new loan, despite the fact that your previous lender is no longer at risk.

While getting a rebate when you terminate your LMI policy is possible, it’s crucial that you ask for it. Most LMI policies don't offer rebates if you've held your home loan for longer than 12 or 24 months. Even if you do get a rebate, this is usually not for the full amount. If you have to get LMI again, you could pay thousands.

Consider LMI costs in the following examples which use the Genworth LMI calculator.

Home valueEquityLVRLMI cost

As you can see, the cost of LMI can be highly expensive which can outweigh the value of any savings you could net from switching lenders.

Alternative options

Before comparing refinancing options, find out how much equity you have in your home. If you don’t have a 20% deposit saved but aren’t far off the mark, it might make sense to wait until you've built up a higher amount of equity.

Alternatively, you can consider applying for a guarantor home loan or applying with specialist banks that may have less stringent lending criteria for refinancemortgages.

Compare refinancing home loans today

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Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at Talk to him to find out more about home loans.

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HSBC Home Value Loan - Resident Owner Occupier only

Enjoy the low variable rate with $0 ongoing fee and borrow up to 90% LVR.

ME Bank Basic Home Loan - LVR <=80% Owner Occupier

A low variable rate loan with no application or ongoing fees.

CUA Fresh Start Basic Variable Home Loan - Owner Occupier

A basic mortgage available only to customers who switch their everyday banking to CUA.

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