How much equity do I need to refinance?

Rates and Fees verified correct on March 30th, 2017

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 March 30th, 2017.

HSBC Home Value Loan - Resident Owner Occupier only

Application fee waived for Resident Owner Occupier only.

February 15th, 2017

State Custodians Line Of Credit Loan - LVR 80% to 90% (Owner Occupier)

Interest rate increased by 0.10%

February 27th, 2017

Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier)

Interest rate increases by 0.10%

February 27th, 2017

View latest updates

Jodie Humphries Jodie
$
% p.a.
Offset account
Split account
Loan type
Your filter criteria do not match any product
Interest Rate (p.a.) Comp Rate^ (p.a.) Rates (p.a) Application Fee Ongoing Fees Maximum LVR Amount Saved
loans.com.au Essentials - Variable (Owner Occupier, P&I)
A low-interest rate loan suited for purchases and refinances with no application or ongoing fees.
3.59% 3.61% Interest rate:
3.59%


Comp rate:
3.61%
$0 $0 p.a. 80% Go to site More info
Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier)
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
3.84% 4.22% Interest rate:
3.84%


Comp rate:
4.22%
$0 $395 p.a. 90% Go to site More info
HSBC Home Value Loan - Resident Owner Occupier only
Enjoy the low variable rate with $0 ongoing fee and borrow up to 90% LVR.
3.75% 3.77% Interest rate:
3.75%


Comp rate:
3.77%
$0 $0 p.a. 80% Go to site More info
CUA Fresh Start Basic Variable Home Loan - Owner Occupier
A basic mortgage with flexible repayments options.
3.99% 4.04% Interest rate:
3.99%


Comp rate:
4.04%
$795 $0 p.a. 80% Go to site More info
State Custodians Line Of Credit Loan - LVR 80% to 90% (Owner Occupier)
Borrow up to 90% property value and pay no application fee.
3.79% 4.12% Interest rate:
3.79%


Comp rate:
4.12%
$0 $299 p.a. 80% Go to site More info
Beyond Bank Low Rate Special Home Loan
A special low variable rate for Owner Occupier with 100% offset account and no application or ongoing fees.
3.83% 3.83% Interest rate:
3.83%


Comp rate:
3.83%
$0 $0 p.a. 70% Go to site More info
loans.com.au Offset Variable - Up to 80% LVR (Owner Occupier P&I)
Take advantage a 100% offset account along with no annual or application fee.
3.67% 3.69% Interest rate:
3.67%


Comp rate:
3.69%
$0 $0 p.a. 80% 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
350,00060,00082.86%$2,059
500,00050,00090%$8,820
600,00080,00086.67%$8,944

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 refinance mortgages.

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 finder.com.au. Talk to him to find out more about home loans.

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Related Posts

HSBC Home Value Loan - Resident Owner Occupier only

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

loans.com.au Essentials - Variable (Owner Occupier, P&I)

A competitive interest rate home loan with interest only options. Interest rate 3.59%p.a.
comp rate of 3.61%p.a.

Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤85% ($150K+ Owner Occupier)

Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.

Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier)

Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.

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