How Much Equity Do I Need To Refinance My Mortgage?

If you want to refinance your home loan, a clear understanding of your current equity is paramount as it helps you better understand the interest rates you can unlock. You may also get a higher borrowing power.

Your equity directly impacts your Loan-to-Value Ratio(LVR) and the overall refinancing eligibility. In this article, we are going to explain how much equity you may require to refinance in 2026.

The Quick Answer – Minimum Equity for Refinancing

To refinance your home loan without paying Lenders Mortgage Insurance (LMI), you need a minimum of 20% equity. This means your loan balance must be 80% or less of your property’s total appraised value.

However, you can still refinance with less equity if you are willing to pay the LMI premium.

Equity Requirements

• 20% Equity – The ideal threshold for standard refinancing without incurring LMI fees.

• Under 20% Equity – Refinancing is possible, but you will be required to pay LMI.

• Cash-Out Refinancing – Typically requires you to leave at least 20% untouched equity.

Rate-and-Term Refinancing

A rate-and-term refinance changes your interest rate or loan term without increasing your loan amount. For this type of refinance, lenders usually require 20% equity to avoid LMI. If your property value has increased, you might reach this 20% threshold faster than you originally planned.

Cash-Out Refinancing

Cash-out refinancing allows you to borrow against your home’s equity for renovations or investments. In contrast to standard refinancing, you must leave at least 20% equity in the home after extracting your cash. For example, if you want to access funds, your total debt cannot exceed an 80% LVR.

How to Calculate Your Usable Equity

Usable equity is the portion of your home’s value that lenders actually allow you to borrow against. You can calculate it using a simple formula:

Usable Equity = (Current Property Value x 0.80) – Current Loan Balance

This calculation ensures you maintain the required 20% equity buffer.

For example, if your home is worth $800,000 and you currently owe $400,000, your usable equity is $240,000.

Usable Equity Calculation Example:

Note: This calculation assumes a standard 80% LVR limit for an owner-occupied or investment property loan.

How Does Property Valuation Affect My Equity?

Property valuation directly impacts your equity because equity is the exact difference between your home’s current market value and your outstanding loan balance.

Consequently, rising property markets naturally build your equity, while declining markets reduce it. A higher valuation lowers your LVR, instantly giving you better refinancing options.

According to recent market trends, even modest capital growth can significantly improve your borrowing power. To discover your true financial standing, you need an accurate property appraisal.

Call to Action: Find out your true usable equity today. Get a free property valuation from a Home Loan Experts mortgage broker to see exactly where you stand.

The Cost of Lenders Mortgage Insurance (LMI)

When your equity falls below 20%, lenders charge LMI to protect themselves against financial default. However, it can sometimes be worth paying LMI to refinance. For instance, if the interest rate savings over the next 2–3 years clearly outweigh the upfront LMI premium, refinancing remains a highly profitable move. You can typically roll these closing costs and LMI fees directly into the new loan balance.

Can I Refinance With Less Than 20% Equity?

Yes, you can refinance with less than 20% equity, but it comes with an additional cost. Refinancing with a higher LVR means you will be required to pay Lenders Mortgage Insurance (LMI). Furthermore, lenders will rigorously check your servicing capacity and Debt-to-Income (DTI) ratio to ensure you can manage the higher risk profile.

Low-Equity Solutions

If you only have between 5% and 10% equity, specialised lenders might still approve your application. In contrast to major traditional banks, specialist lenders offer highly flexible solutions for borrowers lacking a 20% deposit. Additionally, using a guarantor loan is an excellent strategy to waive LMI entirely without needing the full equity amount.

Need Help With Refinancing Your Home Loan?

Home Loan Experts’ mortgage brokers assess your equity and help find the best refinancing option for you. They make sure lenders service your maximum home equity while processing your loan. Call us on 1300 889 743 or enquire online today to learn more about how you can use your equity for refinancing.