What is a Second Mortgage?

A second mortgage is a loan that sits behind your existing home or commercial loan on the same property. Instead of refinancing your current first mortgage, a second mortgage lets you keep your existing loan in place while accessing additional funds using the equity you have built up.

​

In Australia, second mortgages are commonly provided by non-bank private lenders and are typically used for business or investment purposes. They are a powerful tool for borrowers who need short-term capital but either do not want or cannot afford to refinance their primary mortgage.

​

If you already know you want pricing and live scenarios, visit the main product page:
Second Mortgage Loans in Australia.

​

How a Second Mortgage Works

When you take out a second mortgage:

• Your original loan remains in place with your bank or lender

• The second lender registers a new mortgage behind the first

• Both loans are secured by the same property

• In a forced sale, the first mortgagee is paid out first, then the second mortgagee from the remaining funds

Because the second lender is taking more risk (they get paid after the first lender), second mortgage loans usually:

• have higher interest rates than first mortgages

• have shorter loan terms

• are often interest-only or capitalised

For more on how lenders view equity and risk, see Loan-to-Value Ratio (LVR).

​

Second Mortgage vs Refinance vs Caveat Loan

It’s important to understand how a second mortgage compares to other structures.

​

Second Mortgage vs Refinance

You might consider a second mortgage instead of refinancing your first mortgage when:

• your current rate is very competitive and you do not want to lose it

• your existing lender won’t increase your limit

• you need short-term funds only (for 3–24 months)

• your financials are not strong enough for a full refinance

In a refinance, you replace your existing loan altogether.
In a second mortgage, you add a new loan on top of your existing facility.

See also: First Mortgage Loans.

​

Second Mortgage vs Caveat Loan

A second mortgage is different from a caveat loan:

• A second mortgage is formally registered on title

• A caveat loan usually relies on a caveat and is often even more short term

• Second mortgages may suit larger amounts and slightly longer terms

• Caveat loans are often used when speed is critical and the loan is extremely short-term

You can read more about this on the Caveat Loan page.

​

Common Uses of a Second Mortgage

Second mortgages are often used by business owners and investors who:

• need working capital to grow or stabilise a business

• want to fund renovations or improvements to increase a property’s value

• are covering ATO or tax arrears to avoid action

• want to seize an investment opportunity quickly

• need bridging finance while buying and selling property

• are consolidating or reshaping short-term debts

If the funding is purely for business purposes, you may also consider a Short Term Business Loan, which is still secured by property but structured specifically for cashflow needs.

​

Who a Second Mortgage Is Suitable For

A second mortgage can be a strong option if you are:

• a business owner needing short-term funds

• a property investor looking to access equity without disturbing your first mortgage

• a developer needing extra capital for planning, approvals or early works

• a borrower with impaired credit who has strong equity but cannot obtain bank funding

For borrowers with significant credit issues or arrears, see Bad Credit Business Loans.

​

How Second Mortgage Lenders Assess Risk

Private lenders look at second mortgages differently to first mortgages:

1. Equity Position and LVR
   They calculate the combined LVR of both loans (first + second), including fees and any capitalised interest.
   Typical peak LVRs are lower on second mortgages than on first mortgages, because risk is higher.

2. Security Type and Location

   • Metropolitan residential properties generally allow higher LVRs

   • Commercial, regional or specialised security may attract lower LVRs or higher pricing

   For state-based LVR guidance, see Private Lending Australia.

3. Loan Purpose
   The loan must be for business or investment.
   Common examples: working capital, tax debt, development costs, acquisitions.

4. Exit Strategy
   Private lenders always want to see a clear, realistic repayment path, such as:

   • sale of a property

   • refinance to a bank or non-bank first mortgage

   • proceeds from a development or project

Detailed LVR criteria are outlined on the Loan-to-Value Ratio (LVR) page.

​

Key Features of a Second Mortgage

While every lender is different, second mortgages typically share these characteristics:

• Short to medium terms – often 3 to 24 months

• Interest-only or capitalised interest – to reduce monthly pressure

• Flexible documentation – often low-doc or no-doc for suitable security

• Business or investment purpose only

• Property-backed – no unsecured second mortgages

For real pricing and loan ranges, your main product page Second Mortgage Loans in Australia provides live criteria and scenarios.

​

Using a Second Mortgage to Unlock Equity

A client in Melbourne owns an investment property with:

• an existing first mortgage from a major bank

• significant available equity

• a strong rental history, but limited recent financial statements

They want to purchase equipment and hire extra staff for a growing business.
The bank will not extend further credit due to incomplete tax returns.

A private lender provides a second mortgage secured behind the existing bank loan, using the equity in the investment property. The loan is:

• structured over 12 months

• interest-only with the option to capitalise interest

• repaid by refinancing once financials are updated and business profits are demonstrated

The client keeps their competitive first mortgage rate and raises capital quickly without refinancing.

​

Risks and Considerations

Before taking out a second mortgage, borrowers should understand that:

• Interest rates and fees are generally higher than first mortgages

• Total debt against the property increases, which can put pressure on future refinancing

• If the property must be sold, the first mortgagee is paid first and the second mortgagee is paid from what is left

• A realistic and achievable exit strategy is essential

Working with a specialist private lender who understands structuring, risk and timing can help manage these risks effectively.

​

Quick Checklist: Is a Second Mortgage Right for You?

You may be a good fit for a second mortgage if:

• you have strong equity in your property

• you want to keep your current first mortgage in place

• you need short-term funding for business or investment use

• you have a clear repayment plan (sale, refinance, or project completion)

• bank funding is too slow, unavailable, or not flexible enough

If most of these apply, you can explore options with Second Mortgage Loans in Australia or compare alternatives like Short Term Business Loans and Caveat Loans.

​

FAQs: Second Mortgages in Australia

What is a second mortgage in simple terms?

A second mortgage is a loan that sits behind your existing mortgage on the same property, allowing you to access equity without changing your current first mortgage.

​

Do I need my first mortgage lender’s consent?

Some second mortgage lenders do not require formal consent from the first mortgagee, depending on the state and product. However, this is always assessed case by case, and legal advice is recommended.

​

Is a second mortgage only for homeowners?

No. Second mortgages can be secured over residential, commercial, industrial or mixed-use properties, as long as the loan purpose is business or investment related.

​

Can I get a second mortgage with bad credit?

Yes, in many cases. Private lenders focus more on your equity and exit strategy than your credit score. If your scenario is more complex, you may fall into the Bad Credit Business Loans category.

​

How is a second mortgage different from a caveat loan?

A second mortgage is registered as a full mortgage behind the first mortgage, often with slightly longer terms and structured exits. A caveat loan is usually shorter term and relies on a caveat over the title. You can compare options on the Caveat Loan page.

Let’s Work Together

Get in touch so we can start working together.