Property that already has a mortgage

Most Australian business owners who own property still owe something on it. That’s normal, and it doesn’t stop a private loan. What matters is the gap between what the property is worth and what’s already secured against it.

How lending behind a bank works

When a property already carries a bank mortgage, a private lender can sit behind it in second position. The bank keeps first claim on the property. The private lender’s claim ranks next. If the property were ever sold, the bank would be repaid first, then the private lender, then any balance would go to the owner.

Because the private lender is second in line, it lends carefully, and it looks hardest at one figure: the combined loan-to-value ratio, or combined LVR.

Example	Figure
Property value	$1,000,000
Owed to the bank	$450,000
New private loan	$250,000
Total secured debt	$700,000
Combined LVR	70 percent

Different lenders set different limits depending on the property type and location. A standard house in a capital city attracts higher limits than a rural block or a specialised building. You can test your own numbers on the second mortgage calculator.

Second mortgage or caveat?

Both let you borrow behind the bank. They differ in speed and formality.

A registered second mortgage is lodged with the state titles office and is the stronger, more formal security. Many first mortgages require the bank’s written consent before another mortgage can be registered, and getting that consent can take days.

A caveat is a notice on title that protects the lender’s interest. It can often be lodged quickly without first-mortgagee consent, which is why caveat loans are popular when a deadline is very close. Many owners start with a caveat loan and later replace it with a second mortgage or a refinance.

Checking your bank’s mortgage terms

Your existing loan contract may say something about further security. It’s worth checking, or asking your solicitor to check, for:

• a clause requiring consent before any further mortgage or encumbrance
• an “all moneys” clause, which can affect how the bank treats other debts
• cross-collateral arrangements, where one property secures several bank loans
• redraw or offset features that change the real balance owed
• whether the loan is currently in arrears or has any default notices

None of these necessarily stops a private loan. They just shape how it’s structured and how long it takes.

What the private lender will ask for

• a recent statement from your existing lender showing the balance and repayment status
• the property address and who owns it
• what the money is for, which must be a business purpose
• how and when the private loan will be repaid
• ID for every owner and guarantor

With those in hand, a lender can usually order a desktop valuation and give indicative terms within a day.

A worked example

A Bracken Ridge printer needed $180,000 to replace a failed press that had halted production. The family home was worth about $950,000 with $410,000 owing to the bank. The bank’s consent process for a second mortgage was quoted at five to seven business days.

Rather than wait, a private lender lodged a caveat and settled in two days. A month later, with the bank’s consent in hand, the caveat was replaced by a registered second mortgage on a twelve-month term. The press was back running within a week of the first call, and the home loan never changed.

Questions worth asking yourself

• How much buffer do you want to keep in the property after the loan?
• Is the first mortgage up to date, and will it stay that way during the term?
• Could the private loan, plus the bank loan, still be covered if values dipped?
• Is the exit realistic, whether it’s a sale, a payment, or a refinance with the bank?

When the first lender isn’t a bank

Sometimes the existing first mortgage is with a non-bank or private lender rather than a bank. That’s workable too, but the second lender will read the first mortgage terms closely, especially the expiry date. A second mortgage that runs longer than the first creates a risk that the first lender demands repayment mid-term, so lenders often prefer to refinance both into one loan.

Find out what your equity supports

Tell us the property, what’s owed and what you need. We’ll show you where the combined LVR lands and which structure fits your timing. There’s no credit check when you first enquire, and your details are kept with our desk rather than sent around the market.

Please give us accurate balances so the first answer is the right one. Check your eligibility, or read about using a home as security before you start your enquiry.