First and Second Mortgages in Australia: How They Work in 2025

Accessing capital for property or business ventures isn't always straightforward—especially when traditional lenders tighten their requirements. That's where first and second mortgages come in. These loans offer flexible funding solutions, allowing property owners, investors, and businesses to secure financing without the restrictions of major banks.

In 2025, private lenders are playing a crucial role in commercial lending, offering short-term loan solutions between 3 to 12 months, with the option to roll over loans based on borrower conduct. But how do first and second mortgages work? When should you use them? And what should you consider before applying?

Let's explore the key differences, benefits, and best-use scenarios for first and second mortgages in today's market.

What Is a First Mortgage?

A first mortgage is the primary loan secured against a property. It takes precedence over any other loans, meaning that the first mortgage lender gets paid before any other creditors in the event of default.

Key Features of a First Mortgage:

• Loan amounts typically up to 65% loan-to-value ratio (LVR)

• In some cases, up to 75% LVR, depending on location and risk assessment

• Lower interest rates compared to second mortgages

• Short-term loans (3 to 12 months) with possible extensions based on borrower conduct

• Used for property purchases, refinancing, and business funding

Unlike traditional bank mortgages, which can extend up to 30 years, private first mortgages are structured for short-term use—often to cover immediate financing needs while preparing for long-term solutions.

What Is a Second Mortgage?

A second mortgage is an additional loan secured against a property that already has a first mortgage. It ranks behind the first mortgage in repayment priority, making it riskier for lenders and resulting in higher interest rates and shorter terms.

Key Features of a Second Mortgage:

• Secured behind an existing first mortgage

• Short-term loans from 3 to 12 months, with the option to roll over pending conduct

• Interest rates are higher than first mortgages due to increased risk

• Loan amounts depend on total LVR, typically not exceeding 75% (first + second mortgage combined)

• Commonly used for renovations, business expansion, bridging finance, or urgent cash flow needs

  
  

One of the most significant benefits of a second mortgage is that it allows borrowers to access funds without refinancing their first mortgage, making it a strategic option for short-term funding.

First vs. Second Mortgage: Key Differences

Feature	First Mortgage	Second Mortgage
Loan Priority	Paid first in case of default	Paid after the first mortgage is settled
Interest Rate	Lower (Start @ 8.75% pa)	Higher (Start 12.75% pa)
Loan Term	3–12 months (private lending)	3–12 months (private lending)
Loan Amount	Up to 65% LVR (sometimes 75%)	Limited by combined LVR (up to 75%)
Usage	Property purchase, refinancing, investment	Additional funding, renovations, bridging finance

When to Use a Second Mortgage Instead of Refinancing

Many borrowers assume refinancing their first mortgage is the best way to access extra funds, but in some cases, a second mortgage is the better choice.

Here's when a second mortgage makes sense:

• You already have a low rate on your first mortgage – Refinancing could result in higher costs.

• You need quick funding – Private lenders can approve second mortgages in days, while bank refinancing can take weeks or months.

• Your first mortgage has high exit fees – Breaking an existing loan can be costly.

• You need short-term financing—If you need funds for only 3 to 12 months, a second mortgage is often more cost-effective than restructuring your primary loan.

Who Provides First and Second Mortgages in 2025?

In Australia, first and second mortgages can be obtained from various lenders, including:

1. Banks and Traditional Lenders

• Offer long-term financing (up to 30 years)

• Require strict credit checks and complete income verification

• Slow processing times, often taking weeks or months

2. Private Lenders & Non-Bank Lenders

• Provide short-term loans (3 to 12 months) with possible extensions

• More flexible lending criteria, including options for borrowers with non-traditional income

• Can approve loans quickly—sometimes within 24 to 48 hours

• Offer financing up to 65% LVR (up to 75% in some cases when combining first and second mortgages)

Private lenders benefit property investors, business owners, and developers who need fast and flexible financing solutions.

How to Qualify for a First or Second Mortgage in Australia

To secure a first or second mortgage, private lenders will assess the following:

1. Property Equity – The more equity in your property, the higher your borrowing potential.

2. Loan-to-Value Ratio (LVR) – Most lenders cap total LVR (first + second mortgage) at 75%.

3. Exit Strategy – Lenders need a clear repayment plan, such as property sale, refinancing, or business cash flow.

4. Financial Conduct – Borrowers with a strong repayment history may be eligible for loan rollovers.

Second mortgages can sometimes be structured with capitalised interest, allowing borrowers to defer payments until the end of the term—a useful option for managing cash flow.

Risks and Considerations

While first and second mortgages can be valuable tools, it's important to consider the risks:

1. Higher Interest Costs – Second mortgages have higher rates, increasing repayment obligations.

2. Short-Term Loan Commitment – Borrowers must have a solid exit strategy to repay or refinance the loan.

3. Property Risk – Defaulting on either loan could result in property foreclosure.

Choosing a lender with transparent terms and responsible lending practices is crucial to mitigating these risks.

Choosing the Right Loan for Your Needs

First and second mortgages are essential for property owners, investors, and businesses needing short-term, flexible funding. While a first mortgage is ideal for primary financing, a second mortgage can provide additional funds when refinancing isn't practical. Private lenders provide a strong alternative to banks for those seeking fast approvals, flexible terms, and loan periods between 3 and 12 months. For borrowers with a strong repayment history, the option to roll over loans can offer continued access to capital.

Need expert guidance on first or second mortgages?

Innovate Funding specialises in private lending solutions tailored to your needs. Contact us today to explore your options and secure the funding you need—fast.