Refinancing with
Low Equity

What is low equity?

Equity is the difference between what your property is worth and what you still owe on your mortgage. If you owe $450,000 on a property valued at $500,000, your equity is $50,000, which represents 10 per cent of the property value.

Most lenders consider anything below 20 per cent equity as "low equity." This threshold matters because it determines whether you need to pay Lenders Mortgage Insurance.

Your options with low equity

• Refinance and pay LMI — you can still refinance, but the cost of LMI may reduce or eliminate the financial benefit of switching. LMI can cost several thousand dollars depending on your loan size and equity level
• Stay with your current lender and negotiate — your current lender already holds your mortgage, so LMI does not apply if you stay. Ask for a rate reduction or restructure your existing loan
• Wait and build equity — if you are close to the 20 per cent threshold, it may make sense to wait until your equity improves, either through repayments or property value growth

When staying put is the smarter move

If LMI and limited lender options mean the costs of switching outweigh the savings, staying with your current lender may be the better short-term strategy. You can still negotiate a better rate without the costs of a full refinance. A broker can help you assess both options and determine which approach improves your position the most.

For the full picture on refinancing costs and how to evaluate whether switching makes sense, read our comprehensive guide to refinancing in Australia.

Frequently asked questions