Do You Need A Deposit To Refinance

When you’re about to begin the refinancing process, you may wonder whether you need to put down a deposit first.

Refinancing your home loan does not usually require a money deposit.

As opposed to the cash deposit you put down when you first purchased your home, equity is one of the factors that will determine your eligibility to refinance.

Explaining Equity?

Equity is the value of your property minus the amount of debt you owe.

Another way to look at equity is by using this equation.

Property worth minus debt = equity.

Equity is created in two ways: by making payments on a loan and minimizing the amount owed, or if the value of a property increases over time.

How Equity Helps With Refinance?

Equity reduces the lender’s financial risk by providing security on the loan. If you have at least 20% equity in your home, you’d likely be able to refinance without having to get a guarantor.

You can still refinance if you have less than 20% equity in the home. However, you may need to look at options such as a guarantor or paying lender’s mortgage insurance (LMI).

As with a traditional home loan, you will need at least 5% equity in your home to qualify for a refinancing loan.

The more equity you have in your home, the less risky you appear to a lender – which can help you secure that refinance.

Less Than 20% Equity?

If you have less than 20% equity in your home, you might be required to pay lender’s mortgage insurance (LMI) – even if you’ve paid LMI before. This is to protect the lender if you default on your loan.

If you’ll need to pay LMI when you refinance, make sure that refinancing is still the right option for you.

When you’re comparing mortgage deals, be sure to factor in any LMI you may have to pay on top.

An LMI Group broker can arrange a property valuation for you and help you determine how much equity you have in your property. Best of all, this service is free of charge.

If you’d like to chat with us today about how we can help to move you towards your goals, please reach out.