Definition
A second mortgage is a further registered charge over a property that already has a first lender, sitting in line after it. It lets an owner borrow against remaining equity without refinancing the first loan. The second-ranked lender only gets paid once the first is cleared, which is why combined borrowing caps are tighter and pricing is higher.
A second mortgage is one of the most common ways business owners use property equity while keeping a competitive home loan in place.
How it works
The existing first mortgage stays as it is. A second lender advances funds and registers its own mortgage behind the first. Each loan has its own repayments and terms. On a sale, sale proceeds clear the senior debt before any money reaches the junior lender.
Combined LVR
The key measure is combined LVR: the first and second debts added together, compared with what the property is worth. That combined figure, rather than the second loan alone, usually decides how much can be borrowed. Try your own numbers in the property LVR and equity calculator.
When owners use them
Second mortgages suit short and medium-term needs, situations where a full refinance would be slow or costly, and owners who want to keep a good first loan. Our second mortgage review covers the pros and cons. If you are considering one, make one enquiry to see what might be possible.
Common questions
Do I need my first lender's consent for a second mortgage?
Frequently. Check your existing loan contract, as many require the first lender to be told or to agree before anything else is registered.
How does a second mortgage differ from a caveat loan?
No. A second mortgage is a registered mortgage with formal rights; a caveat records a claimed interest. Caveat loans are often faster but give the lender a different kind of security.
Sources and further reading
Related terms