First mortgage vs second mortgage vs caveat loan

Once you’ve decided to use property as security, the next question is how. The answer shapes how much you can borrow, how quickly, for how long and what happens to your existing loan. This comparison lines up the three structures and gives a simple way to choose.

How do the three structures compare?

	First mortgage	Second mortgage	Caveat loan
Recorded on title as	Registered mortgage, ranking first	Registered mortgage, ranking second	Caveat
Existing loan	Usually paid out at settlement	Stays in place	Stays in place
Typical speed	Slowest of the three	Moderate	Fastest
Typical term	Short to long	Short to medium	Short
Borrowing capacity	Highest (first on title)	Limited by combined LVR	Limited by combined LVR, usually conservative
Documentation	Most thorough	Moderate	Lightest
Main risk to manage	Longer commitment, discharge of old loan	Two loans, two repayments, priority terms	The exit and the minimum term

What does ranking mean in practice?

Ranking is the order in which lenders are repaid from a sale. The first mortgagee is paid in full before the second receives anything. A caveator’s protection depends on its interest and timing and is generally treated as behind registered mortgages already on title. The further back a lender stands, the more cautious it is about the combined loan-to-value ratio — so the amount available shrinks as you move from first to second to caveat.

When does a first mortgage make sense?

• The property is unencumbered, or paying out the existing loan is part of the plan.
• You need the largest possible amount.
• The need is medium to long term.
• You’re refinancing everything into one facility.

See private first mortgage loans.

When does a second mortgage make sense?

• You want to keep an existing home or commercial loan you’re happy with.
• There’s meaningful equity above the first loan.
• The need is short to medium term.
• Refinancing the first loan would be slow, costly or unwanted.

See second mortgage business loans.

When does a caveat loan make sense?

• Speed matters above all else.
• The need is short — weeks or months.
• The exit is clear and evidenced.
• There’s enough equity for a conservative combined LVR.

See caveat loans.

How do you choose between them?

Answer three questions:

1. Is there a mortgage on the property already, and do you want to keep it? No mortgage, or happy to pay it out: first mortgage. Want to keep it: second mortgage or caveat.
2. How quickly do you need the money? Within days: caveat. Within a couple of weeks: second mortgage. Time to spare: whichever gives the best overall structure.
3. How long do you need it for? Months: caveat or short second mortgage. Years: first or second mortgage.

If two answers point different ways, a staged approach often works: a caveat now for speed, refinanced to a second or first mortgage once there’s time. Our loan-type finder follows this logic, or you can ask a specialist to test it for your property.

What costs differ between them?

All three involve set-up costs — establishment, valuation, legal and registration fees. First mortgages that pay out an existing loan also involve the old lender’s discharge fee and, possibly, break costs. Caveat loans often have lighter documentation but may carry minimum terms. Second mortgages may require a deed of priority. Compare total cost over your realistic timeline, including a delay scenario. See loan fees explained.

Terms used in this entry

• Priority — the order in which lenders are repaid. Glossary →
• Caveat — a notice on title claiming an interest in the land. Glossary →
• Deed of priority — an agreement between lenders on ranking. Glossary →
• Registered mortgage — a mortgage recorded on title. Glossary →

Worked example (illustrative)

Illustrative only. Three owners each have a home worth about $1.2m.

• Owner A has no mortgage and needs $600,000 for five years to expand a manufacturing business. A first mortgage gives the largest amount and longest term.
• Owner B has a $500,000 home loan on terms she likes and needs $180,000 for two years to buy equipment and stock. A second mortgage keeps the home loan untouched.
• Owner C has a $400,000 home loan and needs $120,000 within days to clear a tax debt, with a refinance planned in four months. A caveat loan provides speed, with the refinance as its exit.

Same property value, three different structures — because the need, timing and existing debt differ.

Which structure suits your property and your plans?

The right choice depends on your existing loan, your timing and how long you need the funds. Our enquiry takes about 60 seconds and there’s no credit check when you first enquire. We don’t circulate your details to multiple lenders — a real person looks at your property position and calls you. Please give your property’s estimated value and current loan balance accurately so we can match the right structure first time.

See if you qualify →