Five straight months of falling home values have quietly pushed some borrowers back above the 80% loan-to-value line. Cotality’s August index put national values 3.6% below their March peak, and for anyone who bought recently with a small deposit, that can be enough to change what refinancing looks like. Moving lenders with less than 20% equity is still possible, but it brings extra costs and fewer options, and those need to be weighed against the rate saving on offer.
How Your Loan-to-Value Ratio Is Worked Out When You Refinance
Your loan-to-value ratio, or LVR, is the loan balance divided by the lender’s valuation of the property. When you refinance, the new lender orders its own valuation and calculates the LVR from that figure. Your original purchase price and any online estimate carry no weight in the assessment, so it pays to have a realistic view of current value before you apply.
Take a borrower who bought for $650,000 with a $520,000 loan, an LVR of exactly 80%. If the property now values at $610,000, the same $520,000 balance represents an LVR of about 85%. Nothing about the borrower’s repayments has changed, but the refinance is now assessed as a high-LVR loan.
Why Lenders Mortgage Insurance Comes Back Into Play
Lenders mortgage insurance is a one-off premium that covers the lender if a loan above 80% LVR defaults, even though the borrower pays for it. The key point for refinancers is that LMI does not transfer between lenders. If you paid LMI when you bought, that premium stays with the original loan, and a new lender will usually require a fresh LMI premium if the refinanced loan is still above 80%.
The cost depends on the loan size and how far above 80% the LVR sits. On larger loans at higher LVRs it can run into thousands of dollars, which can wipe out several years of savings from a lower interest rate. Some lenders waive LMI for eligible professionals, such as certain medical, legal and accounting occupations, up to 90% LVR or higher, so occupation can change the maths.
What Else Changes Above 80%
Higher LVR loans usually sit in a higher pricing tier, so the sharpest advertised rates may not be available. Many lenders reserve their lowest rates for loans at 80% LVR or below, and some publish separate rates for 80% to 90% and above 90%.
Lender appetite also narrows. Some lenders cap refinances at 90% LVR including LMI, and many restrict cash-out or debt consolidation above 80%. If the plan was to refinance and release equity at the same time, a lower valuation can take that option off the table entirely.
Can You Refinance Without Passing the Full Serviceability Test?
In some cases. APRA has confirmed that lenders can approve certain refinances as exceptions to their standard serviceability test, typically where the borrower has a strong repayment history and the new loan reduces their repayments. Not every lender uses this flexibility, and policies differ, so it helps to know which lenders will consider it before applying.
The Full Cost of Moving Lenders
Beyond LMI, refinancing usually involves a discharge fee from your current lender, government fees to register the new mortgage and remove the old one, and sometimes an application or valuation fee from the new lender. If any part of your loan is fixed, break costs may apply, and these can be significant when rates have moved since you fixed.
Cashback offers can offset some of these costs, but they rarely cover a new LMI premium. Adding every cost together and comparing it against the interest saving over a realistic time frame, such as two or three years, gives a clearer picture than the headline rate alone.
Options That Avoid a Fresh LMI Premium
Asking your current lender for a better rate is often the first step for borrowers above 80% LVR. A repricing request does not trigger a new valuation or LMI, and lenders frequently match or move closer to what they offer new customers when a borrower is clearly comparing options.
Making extra repayments to bring the LVR back under 80% before refinancing is another route, although it takes time when values are still falling. For borrowers close to the line, a valuation from a different lender can also come in higher, since valuers do not always agree. Running the numbers on each option side by side shows whether a switch is worth it now or after the LVR improves.
Key Takeaways
- Your LVR on a refinance is based on the new lender’s valuation, so falling values can push a loan back above 80%.
- Lenders mortgage insurance does not transfer between lenders, and a new premium usually applies to a refinance above 80% LVR.
- Loans above 80% LVR often attract higher rates and tighter limits on cash-out and debt consolidation.
- Some lenders can approve refinances as exceptions to their standard serviceability test when the new loan lowers repayments.
- Discharge fees, government registration fees and fixed rate break costs all need to be counted alongside LMI.
- Asking your current lender to reprice the loan avoids a new valuation and LMI, and is often worth doing first.