Quick answer
Choose a caveat loan when speed matters most and the amount is modest. Choose a second mortgage when you have an existing bank loan you want to keep and need a longer term. Choose a private first mortgage when the property is debt-free or you want to pay out the existing lender. Many owners start with a caveat and convert it later.
Key points
- Caveat: fastest, usually short, often converted later
- Second mortgage: sits behind your bank, keeps it in place
- First mortgage: strongest position, often lowest private cost
- The right choice depends on deadline, debt and exit
When you borrow privately against property, the lender’s protection comes from its position on the property’s title. There are three common positions: a caveat, a second mortgage and a first mortgage. Each suits different circumstances, and choosing the right one can save days or a meaningful amount of money.
The short version
| Caveat loan | Second mortgage | Private first mortgage | |
|---|---|---|---|
| Lender’s position | Notice on title, not registered security | Registered, behind an existing first mortgage | Registered, first in line |
| Existing bank loan | Stays in place | Stays in place | Usually paid out |
| Speed | Fastest; same day possible | Fast; often days | Fast; often days |
| Bank consent | Often not needed | Often needed | Not applicable if bank is paid out |
| Typical term | Short, often 1 to 6 months | 3 to 24 months | 3 to 24 months |
| Relative cost | Highest | Middle | Lowest of the three |
| Typical use | Urgent deadline | Equity behind a bank loan | Debt-free property or refinancing a bank |
Caveat loans: built for speed
A caveat is a formal notice lodged on a property’s title. It warns anyone dealing with the property that the lender claims an interest in it. When you take a caveat loan, you sign a loan agreement that gives the lender that interest and allows the caveat to be lodged.
Because a caveat is simpler to lodge than a mortgage and often doesn’t need your first mortgagee’s consent, caveat loans can settle very quickly. For straightforward property and a complete file, $20,000 to $250,000 can possibly settle the same day.
The trade-off is that a caveat gives the lender weaker protection than a registered mortgage. To compensate, caveat loans usually cost more and run for shorter terms. They’re ideal for an urgent need, such as a garnishee notice, a statutory demand or a settlement shortfall, especially when you expect to repay quickly or convert to a mortgage later. Read more on our caveat loans page.
Choose a caveat when: the deadline is days or hours away, the amount is modest relative to your equity, and you have a clear short-term exit.
Second mortgages: equity behind your bank
A second mortgage is a registered mortgage that sits behind your existing bank loan. Your bank keeps first position and your home loan stays exactly as it is. The private lender ranks second.
Second mortgages suit owners who have a good bank loan they don’t want to disturb, perhaps with a low price or features they value, but who need to unlock equity behind it. The lender looks at the combined LVR across both loans. You can test your numbers on the second mortgage calculator.
The main delay with a second mortgage is often the first mortgagee’s consent. Many bank loan contracts require it, and some banks take days to respond. That’s why owners with a tight deadline sometimes start with a caveat and register the second mortgage once consent arrives.
Choose a second mortgage when: you have an existing loan worth keeping, you need a term of several months or more, and you have a few days to arrange consent.
Private first mortgages: the strongest position
A private first mortgage puts the private lender first in line. Either the property has no debt, or the private loan pays out the existing lender in full at settlement.
Because the lender has the strongest position, private first mortgages usually cost the least of the three and allow the largest amounts relative to value. They suit owners with debt-free property, owners whose existing lender is pressing them, and owners who want one loan instead of two.
The downside is that paying out a bank loan may mean losing its features or price, and any break costs on a fixed loan need checking. Read more on private first mortgages.
Choose a first mortgage when: the property is unencumbered, or the existing loan is small, expensive or problematic, and you want the lowest private cost.
A decision path
- Is the deadline within 48 hours? If yes, start with a caveat loan. You can convert it later.
- Does the property have an existing loan you want to keep? If yes, a second mortgage is the natural choice once there’s time for consent.
- Is the property debt-free, or would you rather pay out the existing lender? If yes, a private first mortgage is usually best value.
- Is the amount large relative to your equity? A first mortgage, or security over more than one property, may be needed.
Converting one to another
Many deals start in one form and end in another. A typical path looks like this:
- Week one: a caveat loan settles to meet an urgent deadline.
- Weeks two to four: the first mortgagee consents, and the caveat is replaced by a registered second mortgage with a longer term.
- Months six to twelve: the business refinances with a bank, consolidating both loans into one.
Ask the lender upfront whether conversion is possible, what it costs and whether the same lender will do it. Planning the path from day one avoids paying establishment costs twice.
Costs to compare
Whichever structure you choose, compare total cost in dollars, not just headline price:
- establishment and legal fees
- valuation fees
- interest for the realistic term
- any minimum interest period
- discharge fees
- conversion or refinance costs
The caveat loan calculator helps you see total cost, net funds and the payout figure if you exit early.
State differences
Each state and territory has its own land titles legislation and forms. The basic structures are the same everywhere, but details such as how long a caveat lasts and how it’s removed differ. Queensland owners can read our guide to Queensland caveat rules.
A worked comparison
Consider an owner whose home is worth $1,000,000, with $400,000 owing to a bank, who needs $200,000.
- A caveat loan could settle the same day, ideal if a garnishee notice has frozen the business account. It might run for three months.
- A second mortgage would take a few more days for bank consent, but could run for twelve months at lower cost, suiting a planned refinance after accounts are lodged.
- A private first mortgage would pay out the bank’s $400,000 and advance $200,000 on top, a $600,000 loan in total. It costs less per dollar, but the owner would lose the bank loan and pay interest on the larger balance.
For most owners in this position with time to spare, the second mortgage is the sweet spot. With no time, the caveat comes first.
Ask which fits your deal
Tell us the property, what’s owed, how much you need and when. We’ll tell you which structure suits and how to sequence it. There’s no credit check when you first enquire, and your details stay with our desk. Accurate answers help us match you first time.
Check your eligibility, or read about second mortgages first.
Frequently asked questions
Is a caveat loan legally a mortgage?
No. A caveat is a notice on title that protects the lender's claimed interest, usually backed by a loan agreement in which you agree to the caveat. A mortgage is a registered security interest.
Which option is cheapest?
Generally, a private first mortgage costs less than a second mortgage, which costs less than a caveat loan, because the lender's risk falls as its position improves. Fees and term also matter.
Can I switch from a caveat to a mortgage?
Yes. Many owners do exactly that once the deadline has passed, either with the same lender or by refinancing.
Do I need my bank's permission for a second mortgage?
Often, yes. Many first mortgages require consent before another mortgage is registered. A caveat may not need it, which is one reason it can be faster.