Refinance with Low Equity
Yes, you can refinance with less than 20% equity, but you may need to pay Lenders Mortgage Insurance (LMI) or select a lender with flexible LVR limits.
Can I refinance with less than 20% equity?
Yes, refinancing with less than 20% equity is entirely possible in Australia. Equity represents the difference between your home's current market valuation and your remaining mortgage balance. When your Loan-to-Value Ratio (LVR) exceeds 80%, credit providers generally consider the loan higher risk, but multiple refinance options remain available depending on your financial position.
The main factor to consider when refinancing with low equity is Lenders Mortgage Insurance (LMI). If you switch to a new lender with an LVR above 80%, you will typically incur a new LMI premium, even if you paid LMI on your initial loan. However, many lenders allow you to capitalise this fee into your total loan balance, provided the overall LVR stays within acceptable limits.
To gain approval, you must meet the lender's serviceability criteria. Australian banks evaluate your gross income, ongoing living commitments, and liability profile against current interest rate buffer tests. Demonstrating a clean, reliable repayment track record over the past six to twelve months will significantly strengthen your credit application.
A Lonix broker can compare panel lenders to locate those offering competitive interest rates for higher-LVR home loans. They will help structure your refinance application, account for potential LMI costs, and guide you toward a loan setup aligned with your financial goals.
Related questions
- What is Lenders Mortgage Insurance (LMI)?
- LMI is a one-off policy that protects the lender if a borrower defaults on their home loan. It is usually required when borrowing more than 80% of a property's value.
- Can I avoid paying LMI when refinancing with low equity?
- You might avoid LMI if you qualify for a professional fee waiver or if an eligible family member acts as a guarantor on the new mortgage.
- How do lenders determine my property's equity during a refinance?
- Lenders assess equity by commissioning an independent property valuation or using an automated valuation model to confirm your home's current market value.
- Will refinancing with low equity increase my loan repayments?
- Not necessarily. If you secure a lower interest rate, your repayments may decrease, though adding LMI to your total loan amount will increase the overall principal.