Quick answer
Yes, but the new first lender will insist on ranking first, and registration order works against it: once the old first mortgage is discharged, the existing second mortgage would move ahead of a newly registered loan. So the refinance needs one of four things: the second paid out at the same settlement, a priority deed with the second lender, both loans refinanced into one, or the second lender's consent and cooperation.
Key points
- Priority generally follows the order mortgages are registered, so a new first lender can't simply slot in ahead
- Paying out the second at the same settlement is the cleanest route
- A priority deed lets the second lender stay in place but rank behind the new first lender
- A second lender's caveat can block the new mortgage until it consents or is paid
- Refinancing both loans into one private first mortgage is often simplest when a bank won't play
Refinancing a first mortgage is normally a routine exercise. The new lender pays out the old one, the old mortgage is discharged, the new one is registered, and life goes on. Add a second mortgage or caveat loan to the title and the same job becomes a three-party negotiation.
The reason is ranking. The new first lender expects to be first. The second lender expects to keep the cushion of equity it relied on when it lent. And the land titles office records mortgages in the order they arrive. Get those three things to line up and the refinance settles cleanly. Leave one out and it stalls days before settlement.
Why does a second mortgage get in the way?
Think of the title as a queue. Your bank’s mortgage is at the front and the second mortgage is behind it. When you refinance, the bank leaves the queue. If nothing else happens, the second mortgage is now at the front, and your new lender’s mortgage joins at the back.
No first-ranking lender will accept that. So something has to happen to put the new loan back at the front, or to remove the second mortgage from the queue altogether. Our page on how second mortgages rank explains the queue in more detail.
There are two practical blockers on top of ranking:
- Consent. Second mortgage contracts commonly require the lender’s consent before you grant new security.
- Caveats. If the second lender holds a caveat, the NT land titles office describes caveats as blocking registration of other documents over the land, and caveats in other states work in a broadly similar way. Until the caveator consents or the caveat is withdrawn, the new mortgage may not register.
What are the four ways to make the refinance work?
| Route | What happens | Best when |
|---|---|---|
| Pay out the second at the same settlement | New loan repays both old loans; both are discharged | There’s enough equity and the new lender will lend the larger amount |
| Priority deed | Second lender agrees to rank behind the new first loan, up to a cap | The second loan should stay in place and the new first is no bigger than the old |
| Refinance both into one private first mortgage | One private loan repays the bank and the second | A bank won’t refinance, or speed matters |
| Pay out the second first, then refinance | Repay the second from other funds before the bank refinance | You have cash or a sale coming |
Paying out the second at settlement is the cleanest. Your solicitor asks both old lenders for payout figures, the new lender funds the total, and at settlement the old first and second mortgages are discharged while the new mortgage is registered. Our guide to paying out a second mortgage early covers how payout figures work.
A priority deed is the route when the second loan has time left to run and you don’t want to repay it yet. The deed of priority is signed by both lenders and fixes the order and the amount. Expect the second lender to look closely at the new first loan’s size. If the refinance increases the first loan, the second lender’s equity shrinks, and it may ask for something in return or decline.
One private first mortgage removes the problem entirely. It suits owners whose bank won’t refinance with a private lender still on the title, or who need the refinance done quickly. Read how refinancing a bank into a private first mortgage works.
Not sure which route fits? Tell us about both loans and a specialist will map it out.
What timing traps should you plan for?
Refinances with a second mortgage involve more people, and each one has their own lead times.
- Discharge notice. Lenders often ask for notice before they will discharge. The Queensland Government, for example, asks its home loan borrowers for at least 10 business days’ notice before paying out its loan. Banks and private lenders set their own periods, so check the loan documents.
- Electronic certificate of title. In Victoria, Land Use Victoria explains that where there is a mortgage, the mortgagee will manage the certificate of title until it is discharged. Control has to move to the incoming lender as part of settlement, which the electronic settlement handles, but only if every party is ready on the day.
- Priority deed drafting. A deed takes the longest, because two legal teams must agree the wording. Start it as soon as you know you’ll need one.
- Updated payout figures. Interest keeps accruing. Payout figures are usually valid to a specific date, so a delay means re-requesting them.
Illustrative example
Illustrative only. The business and figures are invented.
A Perth transport company owns its depot. The bank holds a first mortgage of $1.1m, and a private lender holds a $300k second mortgage taken out a year ago to pay an ATO debt. The bank’s facility is up for review and the owner wants to move to a different bank for a longer term.
The new bank will lend $1.4m but only if it is the sole lender at settlement. The owner’s solicitor obtains payout figures from both existing lenders. At settlement, the new bank pays out the old bank and the private second mortgage, both are discharged, and the new mortgage is registered in first place. The private loan ran on an open term, so repaying it at the refinance cost nothing extra in break fees.
If the new bank had declined, the fallback was a single private first mortgage repaying both loans, giving the business time to try another bank later.
What if the second lender won’t cooperate?
Most second lenders are happy to be repaid, so a refinance that pays them out in full rarely meets resistance. Friction usually comes in two situations.
The first is a priority deed request where the new first loan is larger than the old one. From the second lender’s side, you’re asking it to accept a bigger debt ahead of it on the same property. It is entitled to say no, or to ask for a partial repayment so its cushion stays roughly where it was. If that happens, compare the cost of a partial paydown with the cost of paying it out entirely.
The second is a dispute about the payout figure itself, such as default interest or fees you don’t accept. Don’t let that derail settlement. A common approach is for your solicitor to pay the amount demanded at settlement under protest, so the refinance completes, and to pursue the disputed portion afterwards. Get legal advice on the specific wording before you do.
If a second lender simply won’t answer, your solicitor can formally request a payout figure in writing and set a reasonable deadline. Silence rarely lasts once a lender realises it is about to be repaid.
What should you gather before you start?
- the latest statement for the first mortgage and any linked facilities;
- the second mortgage or caveat loan’s Letter of Offer, so you can see its consent and payout terms;
- current payout figures from both lenders, dated close to your target settlement;
- a title search showing every mortgage and caveat;
- the new lender’s approval and any conditions about other lenders on the title.
Our guide to what happens at settlement shows how these pieces come together on the day.
Stuck between two lenders? See if you qualify
When the bank won’t move while the second lender is there, and the second lender won’t move until it’s paid, a single lender who can refinance the whole position is often the circuit breaker. That’s work we do every week.
Our online check takes about 60 seconds. Enquiring won’t affect your credit score; there’s no credit check until you decide to go ahead. Your details aren’t sprayed around to a list of lenders, and a specialist who understands priority and payouts reads your enquiry and phones you. Please list both loans accurately, with balances, limits and the lenders’ names, so we can tell you straight away which route will work.
Frequently asked questions
Why can't the new lender just take first place?
Because priority on the title generally follows the order in which mortgages are registered. When the old first mortgage is discharged, the existing second mortgage becomes the earliest one left. A new loan registered after that would rank behind it unless the second lender agrees in writing to step back.
Does my second lender have to agree to my refinance?
It depends on the loan documents and how the second lender is protected. Many second mortgages and caveat loans require consent for new security, and a caveat on the title can stop a new mortgage being registered without the caveator's consent. In practice, the second lender's cooperation is almost always needed unless it is being paid out.
What is the easiest way to refinance with a second mortgage in place?
Repay the second mortgage at the same settlement as the refinance, using part of the new loan. Everyone ends up in a clean position: one lender, ranking first, with the old first and second mortgages both discharged.
Can a new first lender sit ahead of my existing private second mortgage?
Yes, if the private lender signs a priority deed agreeing to rank behind the new loan up to a fixed amount. The private lender will want to know the new first loan isn't bigger than the old one, or its equity cushion shrinks.
Will a bank refinance a property that has a private second mortgage?
Some will, usually on the basis that the second is paid out at settlement. Fewer banks are comfortable lending in first place with a private lender staying behind them, so check this early in the bank's process.
Can you refinance both loans into one?
Yes. A single private first mortgage can repay the existing bank loan and the second mortgage at the same settlement, provided the combined amount fits within the property's equity. That removes the priority question entirely.