How Much Equity Do I Need To Refinance My Mortgage?
Wondering how much equity you need to refinance but unsure where to begin? Many Aussie homeowners and expats struggle to understand their equity and lender requirements. Without enough equity, you could face higher costs, fewer borrowing options, or even rejection.
This can be frustrating when you want to reduce repayments, unlock cash for renovations, or consolidate debt. The good news? Knowing the right equity level can open the door to better loan terms and savings.
In this guide, you’ll discover what home equity means, the minimum needed for standard and cash-out refinancing, how to calculate it, and options if your equity is low.
Why Home Equity Matters When Refinancing Your Home Loan
Your home equity represents how much of your property you actually own outright, not tied to your mortgage. The more equity you have, the better your chances of securing a good refinance deal with attractive interest rates and flexible terms.
Lenders use your equity as a measure of risk. Higher equity means lower risk for the lender, which often leads to better loan conditions for you. If your equity is low, refinancing options may be limited or more expensive. This is why understanding equity is critical before refinancing your home loan.
Equity can unlock financial opportunities, including access to better rates or borrowing extra cash for renovations or investments.
What Is Home Equity?
Home equity is the difference between your property’s current market value and the amount you still owe on your mortgage. For example, if your home is worth $600,000 and you owe $480,000, your equity is $120,000.
This equity is your real stake in the property you own, free and clear. The more equity you build, the more financial flexibility you gain, especially when refinancing.
You can increase equity by paying down your mortgage or through the natural rise in your property’s value.
Understanding Your Loan-to-Value Ratio (LVR)
Your Loan-to-Value Ratio (LVR) is the percentage of your home’s value that your current loan covers. It’s calculated by dividing your loan amount by your property’s appraised value.
Using the earlier example, if you owe $480,000 on a $600,000 home, your LVR is 80% (480,000 ÷ 600,000 = 0.8).
Lenders prefer lower LVRs because they indicate higher equity and less risk. Most Australian lenders set refinancing eligibility based on your LVR, typically aiming for 80% or below to offer better terms. LVR is key because it directly ties into your equity requirements for refinancing.
Minimum Equity Needed To Refinance a Standard Mortgage
Refinancing your home loan usually requires having enough equity in your property to qualify for the best rates and terms.
The Standard 20% Equity Requirement for Refinancing
In Australia, the most common rule of thumb for refinancing is that you should have at least 20% equity in your property.
In practical terms, this means your Loan-to-Value Ratio (LVR) needs to be 80% or lower. For example, if your home is valued at $500,000, you should owe no more than $400,000 on your mortgage to meet this threshold.
This minimum equity level is important because it qualifies you for the best possible interest rates and loan terms. When you have 20% or more equity, lenders see you as a lower risk borrower. It shows that you own a significant portion of your home outright, which makes lenders more comfortable offering competitive deals.
While it’s still possible to refinance with less than 20% equity, expect to face higher interest rates or additional fees. Lenders may view low equity as a higher risk and offset this with less favourable terms. So, building and maintaining at least 20% equity is a smart financial goal if you want to maximise your refinancing benefits.
How Having Sufficient Equity Avoids Lenders Mortgage Insurance (LMI)
Lenders Mortgage Insurance (LMI) is a fee charged by lenders when your LVR is above 80%, meaning you have less than 20% equity.
If your equity meets or exceeds the 20% mark, you generally won’t need to pay LMI when refinancing. This can save you thousands of dollars upfront or rolled into your loan. For many borrowers, avoiding LMI is a significant incentive to wait until they have enough equity before refinancing.
LMI premiums can be expensive and can add considerably to the overall cost of your mortgage. By maintaining sufficient equity, you lower your borrowing costs and improve your loan’s affordability over time.
Avoiding LMI is not just about saving money. It also reflects financial stability in the eyes of lenders, which may give you access to better loan features and more flexible repayment options.
AU Expats—Ready to Refinance? Know Your Equity First.
- Refinancing without enough equity can cost you more in fees and rates.
- Our expat experts can help you refinance at the right time with the right equity.
- Contact Our Refinance Specialist Today
Equity Requirements for a Cash-Out Refinance
If you’re looking to do a cash-out refinance—borrowing more than your current loan to access some of your home’s equity—lenders typically require a higher equity buffer.
This is because cashing out increases the loan amount and risk. Most lenders expect your equity percentage to be comfortably above 20%, sometimes as high as 30% or more, before approving a cash-out refinance.
Typical Equity Percentage for Cash-Out Refinancing
For cash-out refinancing, you generally need at least 25-30% equity in your home. This means your LVR should be around 70-75% or less.
Having this higher equity threshold helps lenders feel confident that you can manage the increased loan and provides a cushion in case property values fluctuate.
Can You Refinance Your Mortgage With Low Equity?
Refinancing when you have less than 20% equity, meaning your LVR is above 80%, can be tricky, but it’s not impossible. Some lenders offer specialist or low-equity refinance options, though often at higher interest rates and fees.
You might also consider waiting until you build more equity or look into loan products designed for low equity borrowers. Alternatively, some loan products are designed specifically for borrowers in low equity situations, so it’s worth discussing these with a mortgage broker who understands your unique circumstances.
👉See also: Refinancing to Access Equity
The Impact of Equity on Refinance Eligibility and Approval
Lenders view low equity as a higher lending risk, which can affect your refinance application in several ways:
- You may face higher interest rates compared to borrowers with more equity.
- Lenders Mortgage Insurance (LMI) will usually be mandatory, adding extra costs.
- Lenders will perform more detailed income and credit checks to ensure you can service the loan.
- The amount you can borrow might be restricted, limiting your refinancing goals.
Knowing how low equity affects your application can help you make better refinancing decisions. In some cases, locking in a lower interest rate early—even with low equity—might be more beneficial than waiting to build equity.
However, every situation is different, so it’s important to weigh the pros and cons based on your financial goals and circumstances.
How to Calculate Your Home Equity For Refinancing Purposes
Calculating your home equity is straightforward:
- Find out your home’s current market value (get a recent appraisal or use online valuation tools).
- Subtract your outstanding mortgage balance from the market value.
Equity = Current Property Value − Outstanding Mortgage
For example, a home valued at $700,000 with a mortgage balance of $560,000 means you have $140,000 equity.
Why Property Valuation is Crucial
Your equity depends on an accurate property valuation. Lenders will often require a professional valuation before approving refinancing.
Using outdated or inflated property values can lead to surprises or denied applications.
Regularly monitoring your property’s value helps you understand your refinancing options better and when the time is right to apply.
Other Key Refinance Eligibility Factors Lenders Consider
While equity is vital, lenders also look at other factors before approving your refinance, including:
- Your income stability and amount
- Credit score and history
- Existing debts and expenses
- Employment status
- Purpose of refinancing (rate reduction, cash-out, debt consolidation)
Strong performance in these areas can offset slightly lower equity in some cases, improving your chances.
AU Expats—Is Your Equity Ready for Refinancing?
- Refinancing too early with low equity can mean higher costs.
- Let our expat mortgage experts help you understand your equity position and time your next move for the best outcome.
- Contact Our Refinance Specialist Today
Key Takeaways
- You typically need at least 20% equity (LVR 80%) to refinance a standard mortgage in Australia.⬆️
- Having sufficient equity helps you avoid costly Lenders Mortgage Insurance (LMI).⬆️
- For cash-out refinancing, expect to need around 25-30% equity.⬆️
- Refinancing with low equity is possible but usually comes with higher costs and stricter conditions.⬆️
- Calculate your equity by subtracting your mortgage balance from your home’s current market value.⬆️
- Lenders also consider your income, credit, and financial stability alongside equity.⬆️
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