Second Mortgage Interest Rates in Australia (2026 Complete Guide)

What Are Second Mortgage Interest Rates in Australia?

Second mortgage interest rates in Australia typically range between 1.0% and 2.0% per month, depending on the combined Loan-to-Value Ratio (LVR), property type, exit strategy and overall transaction risk.

Most second mortgages are short-term, interest-only loans. Many are structured with capitalised interest, meaning no monthly repayments during the loan term.

Because the lender sits in second position behind an existing first mortgage, pricing reflects higher structural risk compared to standard bank home loans.

What Is a Second Mortgage?

A second mortgage is a property-backed loan registered behind an existing first mortgage.

It allows a borrower to access additional equity without refinancing their primary loan.

Key characteristics of a private second mortgage:

• Secured by residential, commercial or industrial property

• Registered on title in second position

• Short term (typically 6–24 months)

• Interest-only

• Often structured with capitalised interest

Unlike traditional banks, private lenders assess second mortgages primarily on equity and exit strategy rather than strict income servicing. You can read more about how this works on our Private Lending Australia page.

What Is the Average Second Mortgage Rate in 2026?

In the current lending environment, private second mortgage rates commonly sit within the following ranges:

• 1.0% – 1.4% per month: Lower LVR (under 55%), metro residential security, clear refinance exit.

• 1.5% – 1.8% per month: Standard 55–75% combined LVR, residential or commercial property.

• 1.8% – 2.5%+ per month: Higher LVR, urgent transactions, complex exit or elevated risk and type of security.

There is no universal “average rate” because pricing is structured individually.

Why Are Second Mortgage Rates Higher Than Bank Rates?

A second mortgage in Australia is registered behind a first mortgage on title.

If enforcement occurs, the first lender is repaid first. The second lender absorbs greater risk.

Banks rarely offer second mortgage lending. When they do, it is heavily restricted.

Private lenders price:

• Risk position

• Equity buffer

• Exit certainty

• Speed of access

Second mortgages are short-term funding tools, not 30-year residential products.

Second Mortgage vs Bank Refinance: Cost Comparison

Many borrowers compare a second mortgage to refinancing their existing home loan.

If you are exploring alternatives, you may also consider a First Mortgage refinance where servicing allows.

Bank Refinance

• Lower interest rate

• Strict servicing requirements

• Full income verification

• Longer approval timeframe

Second Mortgage

• Higher interest rate

• Equity-based assessment

• Faster approval

• No change to first mortgage

If a refinance is available, it may be cheaper. If refinance is not possible due to timing, servicing or credit issues, a private second mortgage may be the practical solution.

How Much Does a Second Mortgage Actually Cost?

The total cost of a second mortgage loan depends on loan size, rate and term.

Scenario 1: 6-Month Term

Loan: $300,000

Rate: 1.5% per month

Monthly interest: $4,500

Total interest (6 months): $27,000

Scenario 2: 12-Month Term

Total interest (12 months): $54,000

Scenario 3: 18-Month Term

Total interest (18 months): $81,000

This demonstrates why most short-term property loans are structured for shorter durations.

How Are Second Mortgage Rates Calculated?

Private lenders price risk based on four primary factors.

1. Combined Loan-to-Value Ratio (LVR)

Most second mortgage lenders cap transactions at 70–75% combined LVR.

Lower leverage reduces risk exposure and improves pricing.

2. Exit Strategy

Clear exits include:

• Confirmed refinance pathway

• Contract of sale

• Settlement of another property

• Business refinancing

Many business owners combine this structure with a Secured Business Loan where appropriate.

3. Property Type and Liquidity

Metro residential property typically attracts stronger pricing than:

Regional residential

Specialised commercial

Industrial property in secondary markets

Liquidity matters in property-backed lending.

4. Borrower Profile and Credit Position

While second mortgages are equity-driven, lenders still assess:

• Credit history

• ATO liabilities

• Existing arrears

• Overall risk complexity

Where credit issues exist, borrowers may also explore Bad Credit Business Loans as an alternative structure.

Real Example: How We Structured a Second Mortgage

We recently assisted a Melbourne business owner requiring urgent funding to clear ATO arrears.

Client Position

• Property value: $1,200,000

• First mortgage: $720,000

• Required funding (Gross): $180,000

• Combined LVR: 75%

The Structure

• Second mortgage: $180,000

• Rate: 1.6% per month

• Term: 9 months Capitalised interest

• Exit: Confirmed refinance

This was structured under our broader Private Lending Australia model. The funding allowed:

• Immediate tax resolution

• Credit repair

• Refinance pathway

This is how a structured second mortgage solution functions effectively.

Second Mortgage vs Caveat Loan Rates

Borrowers often compare second mortgages with Caveat Loans.

Caveat loans typically:

• Carry higher monthly rates

• Offer shorter terms

• Provide less structured security

A registered second mortgage generally offers:

• Greater lender protection

• More structured documentation

• Potentially more stable pricing

You can read more about this comparison in our Caveat Loan guide.

The 2026 Private Lending Environment

In 2026, demand for private lending has increased due to:

• Higher interest rates in traditional banking

• Tighter servicing policies

• Increased ATO enforcement

• Slower refinance approvals

As a result, activity in the second mortgage Australia market has grown, particularly among business owners and investors seeking short-term liquidity.

Frequently Asked Questions

What is the average second mortgage rate in Australia?

Most second mortgage rates in Australia fall between 1.0% and 2.0% per month depending on risk and LVR.

What is the maximum LVR for a second mortgage?

Most second mortgage lenders cap combined exposure at 70–75% LVR.

Can you capitalise interest on a second mortgage?

Yes. Many private second mortgages are structured with capitalised interest.

How quickly can a second mortgage settle?

Settlement can occur within 5–14 business days once valuation and documentation are complete.

Is a second mortgage suitable for business funding?

Yes. Many business owners use a Secured Business Loan or a second mortgage to access working capital without disturbing their existing home loan.

Is a second mortgage cheaper than a caveat loan?

In many cases, yes. A registered second mortgage often provides stronger security and more structured pricing compared to a short-term caveat facility.

Final Thoughts

Second mortgage interest rates in Australia reflect:

• Risk position.

• Combined leverage.

• Exit clarity.

• Property liquidity.

• Loan duration.

They are higher than retail home loans because they serve a different purpose.

When structured correctly through a professional private lender, a second mortgage can provide fast access to equity and enable strategic financial positioning.