How a second mortgage is assessed
The lender looks at the combined debt against the property. If the first mortgage is $2.0M, the new second mortgage is $500,000 and the valuation is $3.5M, the combined LVR is 71%. That combined figure — not the size of the second loan — determines whether the transaction works.
The key question is what would be left after a forced sale: selling costs, the first mortgagee's full payout including default interest, and only then the second mortgagee.
Consent from the first mortgagee
Most first mortgages prohibit further encumbrances without consent, so a second mortgage typically requires the first mortgagee to consent to registration and, often, to enter a deed of priority capping the first mortgage amount. Some first mortgagees refuse. Where consent cannot be obtained, a caveat is sometimes used instead, which is a weaker position again.
When a second mortgage is the right structure
It suits situations where the first mortgage is cheap and worth keeping, break costs on refinancing are high, timing is too tight to refinance the whole debt, or the borrower needs a comparatively small amount for a short period — deposit funding, a tax liability, construction cost overruns, or working capital while a property sells.
It is the wrong structure where the combined LVR is already stretched, where the first mortgage is close to expiry, or where the exit is not clearly within the term.
Key points
- Second mortgages rank behind and are paid after the first.
- Assessment is on combined LVR across all debt.
- First mortgagee consent and a deed of priority are usually required.
- Higher risk means materially higher pricing than a first mortgage.
Frequently asked questions
What LVR can a second mortgage go to?
Combined LVRs commonly extend to around 70–80% on strong metropolitan security, subject to the deal. No maximum is guaranteed.
Is a second mortgage cheaper than a caveat loan?
Usually yes, because a registered second mortgage is a stronger security position than a caveat.
How long do second mortgages run?
Typically three to twelve months, repaid from a sale or refinance.