Refinancing a bank first mortgage with a private lender

A letter from the bank asking you to “make alternative arrangements” lands differently when your business is running well in every other respect. Facilities come up for review, credit appetites change, a single tough year shows up in the numbers, and suddenly there’s a date by which the loan has to be gone.

Refinancing into a private first mortgage replaces the bank with a lender that decides on the property and the plan. This page covers why owners do it, what happens to the bank loan, and how to set things up so the move back to a bank is straightforward later.

Why do business owners refinance out of a bank?

Rarely because they want to. The usual triggers are:

• A facility review that goes the wrong way — the bank declines to roll over a loan that has expired or is about to.
• Arrears that have built up during a slow patch, with the bank now pressing for repayment.
• An ATO debt or overdue lodgments that make the bank nervous about the whole relationship.
• An industry the bank has decided to step back from, regardless of how the individual business is performing.
• A need for more money the bank won’t provide, even though there’s plenty of equity in the property.
• A change in ownership or structure — a partner leaving, a new trust or company — that the bank wants to reassess from scratch.

In each case the property hasn’t changed. What has changed is the bank’s willingness to wait. A private first mortgage buys you that time.

What happens to the bank loan when you refinance?

The bank is paid out in full at settlement and its mortgage comes off the title in the same transaction that puts the new one on. You never have a gap where the property is unsecured or where both loans are running.

The paperwork side looks like this:

• Payout figure. The bank confirms the exact amount needed to clear the loan on the settlement day.
• Discharge (or release) of mortgage. The bank, as mortgagee, signs the document that removes its mortgage. Titles Queensland, for example, notes that a release of mortgage must be registered for the mortgage to be released — signing alone isn’t enough.
• Lodgment. In most states this is done electronically. Land Use Victoria lists discharges of mortgage and new mortgages among the instruments registered very soon after lodgment, and in NSW all land dealings have had to be lodged electronically since 11 October 2021.

Because everything happens in one electronic settlement, the bank, the private lender and both solicitors are effectively in the same room. For a closer look at the mechanics, read what happens at settlement.

How does a bank-to-private refinance run, step by step?

Step	What happens	What you can do to speed it up
1. Enquiry	You describe the property, what’s owing and the plan	Give accurate figures, including any arrears
2. Assessment	The lender reviews the property and exit — no formal valuation	Have rates notices and loan statements ready
3. Letter of Offer	Amount, term, interest arrangement and fees set out in writing	Ask your solicitor to review it promptly
4. Payout request	Your solicitor or the lender requests the bank’s payout figure	Authorise the bank to release it straight away
5. Settlement	Bank paid out, discharge and new mortgage lodged together	Make sure every owner and director can sign
6. Funding	Any extra funds above the payout reach your account	Confirm account details early

Once documents are in, funding is possible within 24–48 hours for loans up to $5m. The step that most often drags is number four, so ask the bank for its figure the moment you decide to move.

Should you refinance everything or keep the bank and add a second mortgage?

It depends on what the bank wants. If the bank is comfortable keeping its loan and its price is good, leaving it in place and adding a second mortgage for the extra funds can work — although some banks won’t consent to a second mortgage behind them. If the bank has set a deadline or simply wants out, a full refinance into one private first mortgage is usually the cleaner option, and first-ranking security generally prices better than a second.

Our comparison of a second mortgage versus a full refinance works through both paths, and the 60-second loan quiz will point you towards the structure most likely to suit.

Illustrative example: beating a bank deadline

Illustrative example: A Brisbane freight business owns its depot, worth about $2.4m. The bank, after a difficult year in the accounts, declines to renew a $1.1m facility and gives the owner 60 days to refinance. There is also $200k owing to the ATO. A private first mortgage of $1.3m pays the bank out in full and clears the ATO debt in the same settlement — an LVR of roughly 54%. The term is 24 months with interest capitalised, so there are no monthly repayments while the business rebuilds its figures. The exit is a refinance back to a bank once a stronger year is on the books and lodgments are up to date. Illustrative only, not a quote or lending policy.

If your situation looks similar, you can send the details through in about a minute and find out where you stand before the bank’s date gets any closer.

How do you plan the move back to a bank?

The best time to plan the exit is before the private loan settles. A few habits make the return trip far easier:

• Fix whatever caused the problem. If the bank left because of arrears or an ATO debt, the private loan should clear it in full.
• Keep lodgments current. Up-to-date BAS and tax returns are the first thing a bank will look at.
• Choose the term honestly. Twelve months suits an exit already in motion; 24 months suits one that needs a full year of trading behind it.
• Talk to your accountant or broker early about what the next bank will need, rather than waiting until the last quarter of the term.

The exit strategy guide goes further into building a plan a lender will accept, and the private first mortgage overview covers the loan settings in full.

See if you qualify before the bank’s deadline

Every week you wait shortens your runway. Making an enquiry doesn’t involve a credit check, and your details stay with one specialist rather than being sent out to a crowd of lenders.

Tell us honestly what the property is, who owns it, what the bank is owed and whether there are arrears or other debts. Accurate answers at the start mean the answer you get back is one you can rely on.

Find out if a private refinance fits — it takes about 60 seconds.