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How much equity do I need to refinance?

If you have 20% of your home's value paid off, you're eligible for the best mortgage refinance rates.

If you’re planning to refinance your home, one of the first things you need to do is calculate how much equity you’ve built up. While some lenders will let you refinance with as little as 5% equity, you’ll likely have to pay higher interest rates and take out private mortgage insurance (PMI).

Equity is your home’s value minus your mortgage balance

In other words, it’s the difference between your home’s value and what you have left to repay on your loan. For example, if you live in a home worth $750,000 and you still have to repay $250,000, you have $500,000 in equity.

Equity = property value – outstanding loan amount

Graphic explaining home equity.

You’ll need at least 5% equity to refinance, but more is better

Many loans come with a maximum loan-to-value ratio (LVR) of 95%. Which means if you want to refinance you’ll need at least 5% equity in your home. But refinancing with only 5% equity often leads to a higher interest rate and a smaller choice of lenders.

If you want to refinance at the most competitive rate, you’ll need at least 20% equity in your home and a good credit profile. The reason is that lenders look at your equity to assess risk. The more equity you have, the lower risk you present to the lender.

Without 20% equity built up, you’ll have to pay PMI

When you choose to refinance with less than 20% equity in your home, you’ll likely have to pay PMI. Private mortgage insurance generally costs between 0.5% and 1% of the home’s value annually, though you can cancel it once you’ve built up 20% equity in your home.

If you don’t want to pay PMI, or if you’re having trouble getting approved by a lender, you may need to spend some time paying down your mortgage before applying for a mortgage refinance.

Refinancing doesn’t affect your equity

If you’re concerned about how refinancing may affect the equity you’ve built up in your home, you don’t need to be.

For example, if you own a home that’s worth $300,000 and owe $100,000 on your mortgage, you have $200,000 in equity. Refinancing the $100,000 balance on your mortgage won’t change the fact that you have $200,000 in equity.

Compare mortgage lenders and brokers

Compare these lenders and lender marketplaces by the type of home loan you’re searching for, state availability and minimum credit score (for a conventional loan). Select See rates to provide the company with basic property and financial details for personalized rates.

Name Product Loan products offered State availability Min. credit score
AmeriSave
(NMLS #1168)
AmeriSave
Conventional, Jumbo, FHA, VA, USDA, Refinance
Not available in: NY
620
Great customer reviews and customized rate quotes in three minutes with no SSN needed.
Rocket Mortgage
(NMLS #3030)
Rocket Mortgage
Conventional, Jumbo, FHA, VA, Refinance
Available in all states
620
Streamline your mortgage from quote to final payment — all from your computer or phone.
Veterans United
(NMLS #1907)
Veterans United
Conventional, FHA, VA, USDA, Jumbo, Refinance
Available in all states
620
Veterans United stands out from other lenders for its focus on serving the military community.
Better
(NMLS #330511)
Better
Conventional, Jumbo, FHA, Refinance
Not available in: HI, MA, MN, NV, NH, VT, VA
680
Refinance your home loan using an easy online process.
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Compare up to 4 providers

Bottom line

Having 20% or more equity built up in your home puts you in the best position to refinance, but some lenders will consider applicants with as little as 5% equity. If you’ve decided that refinancing is the best step for you, compare mortgage lenders to get started.

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