Do You Need a New Property Valuation When Refinancing?

A new property valuation is commonly required when refinancing because the new lender needs to assess the property’s current value and calculate the loan-to-value ratio. The lender may use an automated valuation, desktop assessment or physical inspection, depending on the property and application. An existing valuation may not necessarily be accepted by a new lender. The valuation can influence refinancing options, equity calculations and whether lenders mortgage insurance or other requirements may apply. Valuation methods and lending criteria vary between lenders.

Why Do Lenders Value a Property When You Refinance?

When you refinance, you are generally replacing your existing home loan with a new loan, either with your current lender or another lender. If you apply with a new lender, that lender needs to assess the proposed security for the loan. A property valuation helps the lender determine what it considers the property to be worth at the time of the application. The valuation can then be compared with the proposed loan amount to calculate the loan-to-value ratio, commonly known as LVR. Even if your property was valued when you originally purchased it, a lender may require current information before approving a refinance application.

What Is Loan-to-Value Ratio?

LVR compares the amount being borrowed with the lender-assessed value of the property. For example, if a lender values a property at $700,000 and the proposed loan is $560,000, the LVR would be 80%. This example is illustrative only. LVR can be an important part of refinancing because lenders may have different products, pricing, lending criteria and requirements at different LVR levels. The lender’s own acceptable valuation is generally used for this calculation rather than the homeowner’s estimate of the property’s value.

Will Every Refinance Require a Physical Valuation?

Not necessarily. A property valuation does not always involve a valuer physically visiting the home. Depending on the lender, property and application, several valuation methods may be available. The lender generally decides which method is appropriate for its assessment. This means two lenders could potentially use different valuation processes for the same property.

When Might a Physical Valuation Be Required?

A lender may request a physical valuation where it wants a valuer to inspect the property. This could occur because of the property’s characteristics, location, available market data, proposed LVR or other aspects of the application. During a physical valuation, the valuer may consider factors such as the property’s size, condition, layout, improvements and location alongside relevant market evidence. A physical inspection does not guarantee that the valuation will match the homeowner’s expectations or an estimate provided by a real estate agent.

Can You Use Your Existing Property Valuation?

You should not assume that an old valuation will be accepted for refinancing. Property valuations are generally prepared for a particular purpose and lender, and market conditions can change over time. A new lender may require a valuation that meets its own policies and assessment requirements. Even a relatively recent valuation obtained for another lender may not necessarily be transferable. The proposed lender or broker can confirm what valuation evidence is required for a particular refinance application.

What Happens If Your Property Value Has Increased?

If the lender assesses the property at a higher value than when you originally obtained your home loan, your LVR may be lower, assuming the outstanding loan balance and other relevant factors. For example, a combination of property value growth and principal repayments could potentially increase your equity position. A lower LVR may affect the lending options available, depending on lender policy. However, property growth should never be assumed. A lender’s valuation may be higher, lower or similar to a previous valuation.

What Happens If the Valuation Comes In Lower Than Expected?

A lower-than-expected valuation can affect a refinance application. Because LVR is calculated using the lender-assessed value, a lower valuation can produce a higher LVR than anticipated. Depending on the circumstances, this could affect the amount available to refinance, lender requirements, pricing or whether lenders mortgage insurance may apply. In some situations, borrowers may need to reconsider the proposed loan amount or explore other available options. A lower valuation does not automatically mean refinancing will be declined, but it can change the application. See what can happen when a property valuation comes in lower than expected.

Could Lenders Mortgage Insurance Apply When Refinancing?

Potentially. Lenders mortgage insurance, commonly known as LMI, may apply where the LVR exceeds certain lender thresholds. The applicable threshold and requirements vary between lenders and loan products. LMI generally protects the lender rather than the borrower if the borrower defaults and there is a shortfall after the secured property is sold. Even if you paid LMI when obtaining your original home loan, refinancing with another lender may result in a new assessment and potentially another LMI cost. Existing LMI does not generally transfer automatically between lenders.

How Does a Valuation Affect Your Equity?

Home equity is broadly the difference between the property’s value and the amount owed against it. However, when discussing borrowing or refinancing, the lender’s valuation is particularly important because it can influence the equity position recognised for lending purposes. For example, a homeowner may believe their property is worth $800,000, but if the lender assesses it at $750,000, lending calculations will generally be based on the lender’s accepted figure. Equity also does not automatically represent an amount that can be borrowed. Any additional lending remains subject to assessment and approval.

What If You Want to Access Equity While Refinancing?

Some homeowners refinance partly because they want to request additional borrowing against available property equity. This may be described as a cash-out refinance or equity release, depending on the lender and circumstances. A valuation can be particularly important because the lender needs to determine the property’s value before assessing the proposed LVR and additional borrowing. The lender may also ask about the purpose of the additional funds. Having equity does not guarantee that a borrower can access it. Income, expenses, existing debts, serviceability, credit history and lender policy can also influence the outcome.

What Other Costs Should You Review When Refinancing?

A property valuation is only one consideration when assessing refinancing. Depending on the existing and proposed loans, costs may include discharge fees, application or establishment charges, settlement costs, valuation fees and potentially fixed-rate break costs. LMI may also be relevant depending on the new LVR and lender requirements. A lower advertised interest rate does not necessarily result in a lower overall cost. Loan term, repayments, features and fees should also be considered when comparing arrangements. Explore the costs that can come with refinancing a home loan.

A new property valuation is commonly part of refinancing because the proposed lender needs current information about the property being offered as security. The lender may use an automated, desktop or physical valuation depending on its requirements. The resulting value can affect the calculated LVR, recognised equity and potentially the lending options or costs that apply. Importantly, a homeowner’s estimate, real estate appraisal or previous lender valuation does not guarantee the figure a new lender will accept. Understanding the valuation process before refinancing can provide a clearer picture of how your property value may influence the application, but the valuation is only one part of the lender’s overall credit assessment.