Deposits and refinancing

Do you need to put down a deposit when refinancing?

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If you’re about to begin the refinancing process, you may be wondering if you need to put down a deposit first? 

Refinancing your home loan usually doesn’t require a money deposit.

Instead, equity is one of the factors that will determine your eligibility to refinance and works in the same way a deposit did when you first bought your home.

What is equity?

Equity is the difference between the value of your property minus the amount you owe.
Another way to view equity is with this simple equation.

Property worth – debt = equity.

Equity is built in two key ways: by simply making payments on your loan and minimising how much you owe, or if your property grows in value over time.

How can equity help me refinance?

Equity provides security on your new loan and reduces the lender’s financial risk. If you have at least 20% equity in your home, you should be able to refinance without the need of a guarantor. If you have less, refinancing is still possible. In this instance, however, you might need to look at options such as a guarantor or paying lender’s mortgage insurance (LMI). Much like how a normal home loan requires you to have at least a 5% deposit, refinancing loans will require you to have at least 5% equity in your home. The more equity you have, the less of a risk you appear to a lender – which can help you secure that refinance.

What if I have less than 20% equity?

If you have less than 20% equity, you might need to pay LMI – even if you’ve paid it before. This is to protect the lender if you default on your loan. If refinancing will mean you’ll need to pay LMI, you might want to make sure that it’s still the right option for you. If you’ve worked out that refinancing will save you money, be sure to factor in any LMI you may have to pay on top.

An Aussie Broker can help you find out how much equity you have by arranging a valuation of your property. Best of all, an appointment comes at no cost to you. Chat with us today to make the right move towards your goals. 

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