$250K Second Mortgage Penrith - Settled in 9 Business Days

A Penrith business owner secured $250,000 in working capital through a registered second mortgage behind an existing Commonwealth Bank (CBA) home loan, without refinancing the first mortgage.

Innovate Funding arranged the facility at a 60% combined loan-to-value ratio (LVR), with a six-month term and capitalised interest. Settlement was completed in just nine business days.

The second lender also agreed to waive its deed of priority requirement following legal review, removing an additional documentation step from the transaction.

The funding allowed the business owner to pay outstanding supplier invoices, obtain goods and continue fulfilling contracted work while awaiting customer payments.

How This Second Mortgage Penrith Transaction Worked

Loan details	Confirmed transaction
Security location	Penrith, NSW
Loan amount	$250,000
Loan type	Registered second mortgage
Existing first mortgage	Commonwealth Bank (CBA)
Combined LVR	60%
Interest rate	1.5% per month
Loan term	6 months
Interest structure	Capitalised
Settlement timeframe	9 business days
Deed of priority	Waived by second lender following legal review
Loan purpose	Business working capital
Exit strategy	Contracted business receipts

The challenge: urgent business funding without refinancing CBA

The borrower operated an established business in Penrith, Western Sydney, and had secured contracts with payments expected over the following months.

However, the business faced an immediate working capital requirement.

Supplier invoices needed to be paid before goods could be released, and additional funds were required to cover materials and other operating expenses necessary to complete contracted work.

Although the business had future income supported by existing contracts, those payments had not yet been received. The borrower owned residential property secured by a Commonwealth Bank first mortgage.

Increasing or refinancing the CBA facility was not an attractive solution. A traditional bank application would have required additional credit and serviceability assessment, potentially delaying funding beyond the business's immediate requirements.

Refinancing the entire existing mortgage could also have increased overall borrowing costs compared with obtaining a separate short-term facility for the additional $250,000.

The borrower wanted to preserve the existing CBA loan while accessing available property equity.

The solution was a business-purpose second mortgage that could be assessed and settled independently of refinancing the first mortgage.

The solution: a $250,000 registered second mortgage

Innovate Funding arranged a $250,000 business-purpose second mortgage secured against the borrower's Penrith property.

The new mortgage was registered behind Commonwealth Bank's existing first mortgage.

The original CBA facility remained in place.

This allowed the borrower to access additional funding without replacing the existing home loan or refinancing the entire debt.

The second mortgage was structured with:

• A six-month loan term

• Interest of 1.5% per month

• Capitalised interest

• A combined LVR of 60%

• Repayment intended from contracted business income

The transaction settled within nine business days.

For business owners who have equity in property but require funding outside traditional bank timeframes, private lending can provide an alternative, subject to credit approval and the suitability of the transaction.

Why the 60% combined LVR supported the application

An important factor in this transaction was the relatively conservative combined loan-to-value ratio. Combined LVR measures the total debt secured against a property relative to its assessed value.

Combined LVR = (First mortgage debt + Second mortgage debt) ÷ Property value × 100

In this case, the existing CBA mortgage and the additional $250,000 facility represented 60% of the property's assessed value. This provided a meaningful equity buffer.

Some private lenders consider combined LVRs of approximately 70% to 75% against suitable metropolitan residential security, depending on their lending criteria.

At 60%, this transaction had a stronger equity position than many higher-leverage second mortgage applications. However, lenders also consider the existing mortgage conditions, loan purpose, property characteristics, interest costs and proposed repayment strategy.

A low combined LVR improves the security position but does not automatically guarantee approval.

How the second mortgage proceeded without a deed of priority

One of the distinguishing features of this transaction was that the second mortgage settled without a separate deed of priority. A deed of priority is an agreement between secured lenders that can clarify their respective rights, including repayment priority, enforcement arrangements and the treatment of existing or future advances.

Many private second mortgage transactions involve a deed of priority, particularly where the second lender requires additional protection or certainty regarding the first mortgage. In this Penrith transaction, the second lender reviewed the proposed security arrangements and waived its requirement for a separate deed of priority following legal review.

The second mortgage was subsequently registered behind Commonwealth Bank's existing first mortgage. Removing the deed requirement avoided an additional legal documentation process and helped the transaction proceed within the required timeframe.

Does every second mortgage require a deed of priority?

No. A deed of priority is not automatically required for every registered second mortgage. Whether one is necessary depends on several factors, including:

• The existing first mortgage terms

• Any consent or registration requirements

• The second lender's credit and legal policies

• The structure of the secured facilities

• The risks associated with the first lender's existing and future advances

A second lender's decision to waive its own deed requirement does not necessarily remove any separate consent obligation imposed by the first mortgage documents.

Borrowers should not assume that a deed can be omitted simply because the combined LVR is low. For further information, read our guide to deeds of priority for second mortgages in Australia.

Why capitalised interest was suitable for this transaction

The borrower required working capital to fulfil contracts and generate the income needed to repay the facility.

Introducing additional monthly interest repayments would have increased pressure on business cash flow during that period. The second mortgage was therefore structured with capitalised interest over its six-month term.

Rather than requiring the borrower to make monthly interest payments, interest was added to the loan balance in accordance with the facility terms. This allowed the borrower to focus available working capital on suppliers, materials and business operations.

What does 1.5% per month mean over six months?

The agreed interest rate was 1.5% per month, equivalent to 18% per annum on a simple nominal basis. Six months of simple interest on $250,000 at 1.5% per month would equal $22,500. However, capitalised interest may accrue on an increasing loan balance, depending on the facility's calculation method.

The actual interest payable and total repayment amount depend on the loan agreement, any applicable compounding, fees and settlement adjustments.

The illustrative $22,500 figure should therefore not be treated as the confirmed interest charged on this transaction. For more information, see our guide to second mortgage interest rates in Australia.

The exit strategy: repayment from contracted business receipts

An essential consideration for private lenders is how the borrower intends to repay the facility. In this transaction, the proposed exit strategy was repayment from the business's contracted income. The borrower had secured contracts under which payments were expected during the loan term.

The $250,000 facility provided the working capital needed to purchase goods, pay suppliers and fulfil the underlying contractual obligations. As the business completed its work and received the associated payments, those receipts were intended to fund repayment of the second mortgage.

This provided an identifiable repayment source rather than relying solely on anticipated future business growth. Nevertheless, contracted receipts are not guaranteed.

Payment delays, disputes, changes in operating costs or contractual performance can affect the borrower's ability to repay.

For this reason, private lenders assess the reliability and timing of the proposed exit strategy alongside the property's security position.'

Why a second mortgage was preferred over refinancing

The borrower had two broad options: seek an increase or refinance of the existing CBA facility, or arrange a separate second mortgage. The second mortgage offered several practical advantages in this transaction. The existing CBA mortgage remained unchanged. The borrower did not need to replace the entire first mortgage facility.

Only the additional funding requirement was financed at private lending rates. This avoided applying the higher short-term interest rate to the entire existing mortgage balance. The loan was structured around the business's cash-flow cycle. Capitalised interest reduced the need for monthly payments during the six-month term. Settlement was achieved within nine business days. This allowed the borrower to address the immediate supplier payment requirements.

Although second mortgages generally carry higher interest rates than conventional bank mortgages, they can be commercially suitable where the borrower needs short-term funding and wishes to preserve an existing lower-cost first mortgage. The total cost of the facility, including fees and interest, must still be considered against the available alternatives.

Can a business obtain a second mortgage against residential property?

Yes. A genuine business-purpose loan can potentially be secured against residential property, including property that already carries a first mortgage. However, the use of residential security does not, by itself, determine whether a loan falls outside Australia's consumer credit legislation.

The actual purpose and circumstances of the borrowing must be assessed. In this transaction, the loan proceeds were required for business working capital, including supplier payments and goods needed to fulfil existing contracts. Innovate Funding specialises in business-purpose private lending and assesses the intended use of funds before arranging finance.

What this Penrith transaction demonstrates

This settled transaction highlights three considerations for business owners exploring property-secured funding.

• An existing bank mortgage does not necessarily prevent further borrowing

A borrower may be able to obtain a registered second mortgage while retaining an existing first mortgage. The outcome depends on available equity, the first mortgage conditions and the second lender's requirements.

• Capitalised interest can support short-term business cash flow

Where a business expects future contracted receipts, a capitalised interest structure can reduce monthly repayment pressure. However, the interest still accrues and increases the amount ultimately repayable.

• A deed of priority may not always be required

In this transaction, the second lender waived its deed of priority requirement following legal review. This simplified the documentation process, although other transactions may require a deed, consent or both.

Frequently asked questions

Can I get a second mortgage behind Commonwealth Bank?

Potentially. A second mortgage can be registered behind an existing CBA mortgage where the relevant first mortgage conditions, lender requirements and legal arrangements permit it. This Penrith transaction involved a registered second mortgage behind CBA.

How quickly can a private second mortgage settle?

Settlement depends on the property, existing lender requirements, valuation, legal documentation and credit assessment. This particular $250,000 transaction settled within nine business days. Other transactions may take longer.

Can a second mortgage have capitalised interest?

Yes. Some private lenders offer capitalised interest facilities, where interest accrues and is added to the loan balance rather than being paid monthly. This may be suitable for short-term business funding where a credible repayment strategy exists.

Is a deed of priority always required?

No. In this transaction, the second lender waived its deed requirement after legal review. However, the first mortgage terms and any separate consent requirements must still be satisfied.

How much equity do I need for a business second mortgage?

Requirements vary between lenders. Some consider combined LVRs of approximately 70% to 75% on suitable metropolitan residential security. This Penrith transaction was completed at 60% combined LVR.

Can I use a second mortgage to pay business suppliers?

Yes, subject to lender approval and verification of a genuine business purpose. Funds may be used for eligible working capital expenses, including supplier invoices, stock, materials and equipment.

Need a second mortgage for business working capital?

If your business needs additional funding and you have equity in residential or commercial property, Innovate Funding can assess whether a second mortgage is suitable. We arrange private lending throughout New South Wales, including Penrith and the wider Western Sydney region.

To receive an initial assessment, provide:

• Security property address

• Estimated property value

• Existing first mortgage lender and balance

• Loan amount required

• Business purpose

• Proposed exit strategy

• Required settlement timeframe

We can generally provide indicative feedback within 24 to 48 hours of receiving sufficient information, subject to the transaction and lender availability.

Submit your funding scenario or call 02 8919 3639.

Innovate Funding provides suitable commercial funding through its own capital and arranges other transactions through private and non-bank lending partners.