When it comes to refinancing your home loan in Australia, there are a few things you need to take into account - one of which is how much equity you have in your home.
Equity is basically the portion of your home loan that you've already paid off, and it can be used as security for a new loan. The amount of equity you need to refinance will depend on a few factors, including the value of your home, the type of loan you're looking for and your lender's requirements. Let's look at how you can use equity and how much of it you need to refinance your home.
What Is Equity and Why Do I Need It to Refinance?
When you hear the word ‘equity’, it’s likely that you think of your home equity – the value of your property minus any outstanding mortgage. But equity can also refer to the ownership stake that you have in a company. In the financial world, equity is often used as a synonym for stocks.
When you buy shares in a company, you become a shareholder and own a part of that company. The more shares you own, the greater your equity stake in the company. Your equity stake can go up or down in value, depending on the performance of the company. If the company does well, the value of your shares is likely to increase. Conversely, if the company performs poorly, your shares may lose value.
But What Does Equity Have to Do with Refinancing Your Home Loan?
In order to refinance your home loan, you will need to have equity in your property. Equity is the portion of your property that you own outright – it’s the value of your property minus any outstanding mortgage. For example, let’s say you own a property worth $500,000, and you have a $300,000 mortgage outstanding. This means you have $200,000 in equity.
In order to refinance your home loan, you will need to have at least this amount of equity in your property.
But Why Do You Need Equity to Refinance Your Home Loan?
When you refinance your home loan, you are effectively taking out a new loan to replace your existing loan. Lenders will only approve your loan if they believe you will be able to repay it. As part of their assessment, they will look at your equity stake in your property.
The more equity you have, the lower the risk for the lender. This is because they can rely on the value of your property to cover the cost of the loan if you default on your repayments. For this reason, you will usually need to have at least 20% equity in your property to refinance your home loan.
If you don't have 20% equity, you may still be able to refinance, but you may have to pay lenders mortgage insurance (LMI). LMI protects the lender in case you default on your loan, and it's typically required if you have less than 20% equity.
Overall, you'll need to have at least 20% equity in your home to refinance in Australia. If you don't have 20% equity, you may still be able to refinance, but you may have to pay lenders mortgage insurance (LMI). It's also important to keep in mind that your lender may have different requirements when it comes to equity. Some lenders may require more equity than others, so it's always best to check with your lender before you apply for a refinance.
If you're planning on refinancing your home loan, it's best to work with one of the best mortgage brokers in Sydney. Wealthy You is an Australian Mortgage Company that's been serving the community of Sydney for more than a decade. As an alternative lending specialist, we make it our mission to help you find the most suitable financing options you can afford. Whenever you need a mortgage broker in Sydney that you can trust, Wealthy You is the one to call. Contact us today to get started!