Can I refinance if my property value has dropped?

Lenders Mortgage Insurance protects the lender, not you, and it is not portable. When you refinance to a new lender above 80 per cent LVR, that lender needs its own policy and you pay a new premium calculated on the new loan. The original premium is not refunded, or only partially if the loan is less than a year or two old. On a $600,000 loan at 88 per cent LVR the new premium can be well over $10,000, which usually wipes out any rate saving.

Your existing lender does not need to revalue the property to adjust your rate. Their retention teams will often match a competitor's rate to keep the loan, and they can offer a fixed rate, a split, or an offset without a new application. If the LVR has moved against you, staying put and negotiating is usually the cheapest move. Rate negotiation is free; a second LMI premium is not.

Paying the loan down to 80 per cent from savings, an offset balance or a family gift makes the refinance normal again. A guarantor security from a parent can also bring the LVR under 80 per cent for the new lender. If neither is available, waiting for values to recover or for the balance to reduce through repayments is the realistic path. Ordering your own valuation before applying avoids an unnecessary credit enquiry if the number is not there.

For investment properties the limits are tighter: many lenders cap investment refinances at 80 to 90 per cent and will not allow cash out above 80. If the value has dropped, equity release for the next purchase is off the table until the LVR recovers, and lenders will look at rental yield and vacancy as well.