Private second mortgage: what changes when the lender isn't a bank

Ask most banks for a second mortgage behind another lender and the answer is some version of “we’d rather refinance everything.” That makes sense for the bank, but it isn’t always what the business needs. A private second mortgage exists for the gap: you keep your current first mortgage, and a private lender registers its loan behind it.

Here’s what “private” actually changes, what stays the same, and how to judge whether a particular private lender is one you want on your title.

What makes a second mortgage “private”?

The word describes who funds it. A private lender is neither a bank nor a large non-bank mortgage manager; it lends from its own capital or from investor funds, and it decides each loan individually. That structure is why private lenders can say yes to positions banks avoid, such as sitting second behind someone else’s loan, funding within days, or lending where the credit file has marks on it.

Private credit is no longer niche. In a September 2025 media release, ASIC described a “rapidly expanding $200 billion private credit sector” and called on the industry to lift standards on fees, governance and disclosure. That growth means more choice for borrowers, and more reason to check who you’re dealing with.

	Bank top-up or refinance	Private second mortgage
Your existing first mortgage	Usually refinanced or varied	Stays in place, unchanged
Main assessment	Serviceability and full financials	Equity behind the first loan and the exit
Paperwork	Tax returns, financial statements, forecasts	ID, title and loan details, exit evidence
Property assessment	Often an external valuation	No sworn valuation — we assess value ourselves
Credit marks	Frequently decisive	Considered case by case
Intended term	Long	Short, with open terms
Price	Lower	Higher, set loan by loan

How does a private lender assess a second mortgage?

Three questions do most of the work.

How much room is behind the first loan? Combined borrowing on the property can reach 80% of its value for residential security, or 70% for commercial (less on big acreage). Subtract the first mortgage balance and anything else registered, and the remainder is the ceiling for a private second.

Is the first mortgage healthy? A first loan that’s up to date, with a contract that allows further security or a lender willing to consent, is the foundation of every private second.

How does the loan end? A sale, a refinance, a contract payment or another clear source of repayment. Our guide on how private lenders assess a loan goes through each of these in depth.

What a private lender doesn’t usually need is three years of financial statements, a business plan and forecasts, which business.gov.au lists among the things lenders commonly ask for. That’s the paperwork gap that lets a private second move in days.

What should you ask a private second mortgage lender?

Not every private lender works the same way. Before you sign, get clear answers to these:

1. Are you the lender, or are you arranging the loan with someone else? A direct lender decides; an intermediary passes your file on. Our direct lender vs broker comparison explains why that matters.
2. Whose money is it? Own capital, a pooled fund or individual investors. It tells you who holds the mortgage.
3. Do you order a valuation, and who pays for it? With us, there’s no sworn valuation and nothing to pay for one.
4. What are all the costs? Interest, fees and legal costs should be set out in the Letter of Offer before you commit.
5. What happens if I repay early? With open terms, there should be no penalty.
6. What happens at the end of the term? Ask how extensions are handled before you need one.

The guide on how to check a private lender adds the public searches worth running yourself.

If those answers matter to you, they matter to us too. A 60-second enquiry gets a specialist on the phone who can answer every one.

How is a private second mortgage structured?

There are two ways to record the lender’s interest behind your bank: a registered second mortgage or a caveat. A registered second suits a need running several months. A caveat loan is quicker to put in place and suits short needs, and it can later be converted to a registered second mortgage. Our caveat loans page sets out the trade-offs.

Repayments are flexible. Interest can be capitalised for up to 6 months, so there are no repayments in that period. Terms are open: no minimum, no maximum, and early repayment carries no penalty. That suits the way private seconds are normally used, as a bridge to a defined event.

Where does a private second mortgage fit, and where doesn’t it?

It fits best when the first mortgage is worth keeping and the need is defined:

• an ATO bill or director penalty notice that needs paying now;
• a supplier, stock order or contract that has to be funded before the customer pays;
• a partner buyout or deposit with a fixed date;
• a bank that has declined a top-up, with a refinance possible once the issue is fixed.

It fits poorly when the need is permanent, when there’s no clear way to repay, or when the purpose is personal. These loans are for business purposes only.

Illustrative example: a Canberra architecture practice owns its office suite, worth around $1.2m, with $500k owing to a non-bank lender on a good term. Two partners are retiring and the remaining partners need $250k to buy them out by a date set in the partnership agreement. Illustrative: at a 70% commercial band, total lending could reach $840k, leaving $340k behind the first loan. A private second mortgage of $250k funds the buyout without disturbing the first loan, and the partners plan to refinance both loans into one once the practice’s next two years of figures are lodged.

What does the process look like from your side?

From enquiry to funds, a private second mortgage has fewer steps than a bank application, but each one needs your input:

• Enquiry and first call. You describe the property, the first loan, the amount and the exit; a specialist checks the numbers with you.
• Terms. An indicative amount, term and structure are set out.
• Documents. ID for every owner, the latest first mortgage statement, entity papers if a company or trust owns the property, and exit evidence.
• First lender consent, where the first mortgage contract requires it. Raise this on day one.
• Letter of Offer and signing. Your solicitor explains the documents and witnesses signatures.
• Settlement. The mortgage is lodged electronically and funds are paid, to you or directly to the creditor.

Funding can happen in as little as 24 hours from a clean, complete application. The second mortgage checklist helps you gather everything in one go.

How is a private second mortgage priced?

Without quoting numbers, the drivers are consistent. Ranking second means more risk than ranking first, so a second mortgage costs more than a first. Within that, price moves with the loan-to-value position, the property type and location, the term, and how firm the exit is. A private loan is also designed to be short, which is the best way to keep its total cost down. Our guide to private mortgage costs lists every item you should expect to see.

Keep your bank loan, add private funds: see if you qualify

If the property has room behind its first mortgage and you know how the loan will end, a private second mortgage may be the cleanest way through. The enquiry takes about 60 seconds.

You can ask with no credit check, so your credit score is untouched by finding out. We’re the direct lender, so your details aren’t passed around a panel of funders. A specialist looks at your property and first mortgage personally and calls you. Fill the form in accurately, especially the balance owing and who the first lender is, and the answer you get will be one you can rely on.

Check your private second mortgage →