Refinance without equity

When refinancing with no equity, you're applying for a higher-risk home loan. Here's how negative equity refinancing works.

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Found yourself in a situation where you need to refinance without equity? Ending up with a property and a home loan with negative equity can happen for a few different reasons, including when:

  • You bought your property recently, then property prices drop.
  • You co-own the property and need to buy the other partner out due to relationship breakdown, but your portion of ownership leaves you with very little equity.

It can be tricky to refinance your home loan or even sell your property with negative equity, but it's not impossible.

Equity, negative equity and refinancing

Your equity is how much of your home you actually own. It's the value of the property, minus any mortgage debt you still owe.

Negative equity occurs when you only own a small portion of your home and then your home loses value. This can happen during a property crash or market downturn, or if your property is damaged in some way.

Refinancing is when you switch from your old mortgage to a new one, usually with a lower interest rate. Refinancing is a good way to save money. But it's hard to do it when you're stuck in negative equity.

Can you refinance with less than 20% equity?

While many lenders will lend you money with just a 5% deposit, you usually need at least 20% to refinance.

You could refinance with less than 20% equity, but you'd probably need to pay lenders mortgage insurance on top. This is true even if you paid lenders mortgage insurance the first time round.

Learn more about the amount of equity that you need to refinance your mortgage.

Example: Glen and Sara

  • Glenn and Sara bought an inner city apartment for $600,000 in 2019 with a 5% deposit, worth $30,000.
  • They have a loan worth $570,000, which they fixed into an interest rate of 3.99% for two years.
  • In 2021, their loan is coming out of the fixed rate period. They would like to refinance to home loan with a cheaper interest rate.
  • They decide to refinance and get a property valuation. Unfortunately, because apartments are over-supplied, the property hasn't grown in value.
  • In fact, the valuation shows the property's value is now just $580,000.
  • They have paid just $10,000 off the loan principal, so their home loan is $560,000.
  • Glenn and Sara are stuck with just $20,000 equity in the property.

If Glen and Sara's property was valued less than $560,000, the current value of their home, then they would be in negative equity.

How can you refinance without equity?

  • Consider specialist lenders. If you're looking to refinance and you've only built up a small amount of equity in your home, think about refinancing to specialist lenders or building societies. These lenders may have more lenient eligibility criteria when it comes to determining your serviceability potential. If you can demonstrate that you have enough savings, income or assets to service the loan, the lender may overlook the minimal amount of equity that you have.
  • Find a guarantor. With a small amount of equity in your existing home, you may want to refinance to a guarantor loan. This can boost your borrowing capacity as the guarantor essentially takes responsibility for servicing the loan if you default.
  • Get an independent valuation. If you can prove that your property has increased in value, then the lender may be more inclined to let you refinance and borrow a larger amount of funds.
  • Request a copy of your credit file. With a small amount of equity, you present a larger risk to the lender. This is why it may be a good idea to take measures to trim your existing debt and clean up your credit file. If you can show the lender that you make a conscious effort to meet your repayments on time and make extra repayments in the past, then they may be more likely to approve your refinance application.

What are the alternatives to refinancing without equity?

If you're unable to refinance then you might have to simply build equity by paying off more of your mortgage.

  • Make extra repayments. Easier said than done, but if you have extra cash or other assets you can sell to help reduce your mortgage then you could build enough equity to refinance your mortgage.
  • Add value to your property. Renovating the property could add value, if done correctly. You need to work out what renovations will add value and how affordable those renovations are. If you have handyman skills or know someone who does this could be a good option.
  • Rent it out. You could rent out a room in the property to bring in extra money to help make repayments. It might not be an ideal option, but for some people it might be worth it.

Compare 90 - 95% LVR home loans

The loans below are not 0% deposit or no equity home loans, but allow applications from borrowers with 5 - 10% deposit or equity.

Name Product Interest Rate (p.a.) Comp. Rate (p.a.) Fees Monthly Payment

Newcastle Permanent Building Society Fixed Rate Home Loan P&IHome 1Y Fixed≥ 5% Deposit

Newcastle Permanent Building Society Fixed Rate Home Loan
  • App: $0
  • Ongoing: $0 p.a.
A fixed rate loan which allows extra repayments, and charges a low application fee.

Greater Bank Great Rate Home Loan P&IHome≥ 20% Deposit

Greater Bank Great Rate Home Loan
  • App: $0
  • Ongoing: $0 p.a.
Fund the construction of your new family home with a very competitive variable interest rate.

Newcastle Permanent Building Society Premium Plus Package Fixed Rate P&IHome 2Y Fixed≥ 5% Deposit

Newcastle Permanent Building Society  Premium Plus Package Fixed Rate
  • App: $0
  • Ongoing: $395 p.a.
$2,000 refinance cashback
Enjoy a discounted fixed rate and the ability to package the loan with other financial products. $2,000 cashback for eligible refinancers borrowing $250,000 or more.

IMB Fixed Rate Home Loan P&IHome 2Y Fixed≥ 5% Deposit

IMB Fixed Rate Home Loan
  • App: $449
  • Ongoing: $6 per month
NSW and ACT customers only. Lock in a low fixed rate for two years. Available with a 5% deposit.

Westpac Flexi First Option Home Loan P&IHome≥ 5% Deposit

Westpac Flexi First Option Home Loan
  • App: $0
  • Ongoing: $0 per month
$3,000 refinance cashback
A flexible and competitive variable rate loan. Available to owner occupiers on principal and interest loans. $3,000 cashback for eligible refinancers. Apply by 31 August 2021. Terms and conditions apply.

Newcastle Permanent Building Society Fixed Rate Home Loan P&IHome 3Y Fixed≥ 5% Deposit

Newcastle Permanent Building Society Fixed Rate Home Loan
  • App: $0
  • Ongoing: $0 p.a.
Split you home loan for free with one of the lowest fixed home loan rates.

Newcastle Permanent Building Society Premium Plus Package Home Loan P&IHome≥ 5% Deposit

Newcastle Permanent Building Society Premium Plus Package Home Loan
  • App: $0
  • Ongoing: $395 p.a.
$2,000 refinance cashback
No application fee and 100% offset account. $2,000 cashback for eligible refinancers borrowing $250,000 or more.

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4 Responses

    Default Gravatar
    JamesJuly 31, 2018

    I want to increase my mortgage with little equity to pay credit cards off. Is this possible?

      Avatarfinder Customer Care
      JeniAugust 9, 2018Staff

      Hi James,

      Thank you for getting in touch with Finder.

      Yes, that is possible. If you’ve paid down your loan or your home has increased in value, you may be able to use your equity to refinance or increase your home loan. Refinancing to a debt consolidation loan involves reviewing your existing debts (and mortgage), and combining them into a new mortgage so that you have one monthly repayment, instead of several repayments.

      I suggest that you speak with your bank regarding this. In addition, you may learn more about refinancing to consolidate debt.

      I hope this helps.

      Please feel free to reach out to us if you have any other enquiries.

      Thank you and have a wonderful day!


    Default Gravatar
    RachelAugust 21, 2014

    We want to refinance our mortgage.
    Current professional evaluation came in at $865,000 resale and we currently have a home loan of $715,000 and wish to increase it to $780,000.
    We also have a guarantor willing to put up an unmortgaged property over the loan. We have already been rejected by Westpac as they apparently don’t allow guarantee on a refinance only a new home purchase.
    I had never heard of this, please advise your thoughts……

      Avatarfinder Customer Care
      ShirleyAugust 22, 2014Staff

      Hi Rachel,

      Thanks for your question.

      In general, guarantors are designed to help first home buyers purchase a property. Some banks might not be able to offer this feature when it comes to refinancing.

      If you’d like, you might want to speak to a mortgage broker, they may be able to point you in the right direction and help you with your application.


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