Second mortgage or refinance everything?

When a business needs money and the property already has a bank loan on it, there are really only two secured routes. You can leave the bank where it is and add a second mortgage behind it. Or you can pay the bank out and replace everything with one private first mortgage. Both work. The trick is choosing the one that costs less across the whole debt and actually gets done in time.

What’s the difference between a second mortgage and a refinance?

A second mortgage adds a new loan behind your existing bank loan. The bank keeps first place, its pricing and its repayment schedule. The private lender ranks second and lends against the remaining equity.

A refinance pays out the bank entirely. The bank’s mortgage is released from the title, and a private first mortgage replaces it for the old debt plus the new money. You end up with one lender, one loan and one exit to plan.

	Add a second mortgage	Refinance into a private first mortgage
Existing bank loan	Stays in place, unchanged	Paid out and released
Bank’s permission	Often needed for a further mortgage	Not needed, the bank is being repaid
Amount priced privately	Only the new money	The whole debt
Lender’s risk position	Second, behind the bank	First
Typical term	Shorter-term	1 to 24 months
Paperwork with the bank	Permission request	Payout figure and discharge
Best when	Bank loan is healthy and the new amount is modest	Bank loan is under pressure, or the new amount is large

When does keeping the bank loan make more sense?

A second mortgage usually wins when your bank loan is something worth protecting. That tends to mean:

• the bank’s pricing is sharper than any private first mortgage would be;
• the loan is on a long term with years left to run;
• you’re up to date and the bank is happy;
• you need a relatively small sum compared with the bank debt;
• the need is short, with a clear exit such as a sale or a payment coming in.

In that case, refinancing the whole lot to raise a small amount means paying private pricing on money that was already cheaply funded. It also means extra work: the bank has to provide a payout figure, prepare a release of mortgage and attend settlement.

There’s more on the mechanics behind this option on the second mortgage business loans page.

When is refinancing the whole debt the better move?

Sometimes the second mortgage route simply isn’t available, or isn’t sensible:

• The bank won’t give permission. Many first mortgages require the lender’s permission before another mortgage is registered. If it’s refused, a second over that property is usually off the table.
• The bank loan is in arrears or under review. A second lender relies on the first loan staying in good order, so a stressed bank loan is better replaced than added to.
• The bank wants you out. An expiring facility, a covenant breach or a call for repayment makes refinancing the natural fix.
• The new money is large. If you need nearly as much as you already owe, one first mortgage is often simpler and better priced than a big second.
• You want one exit, not two. Consolidating secured debts can make the plan to repay cleaner.

Our page on refinancing a bank first mortgage covers that path step by step, and the pillar on private first mortgage business loans explains terms of 1 to 24 months.

How do you compare the true cost of each option?

Look at the whole debt for the period you’ll actually hold it, rather than the headline price on the new money alone. Without quoting rates, here’s the framework a specialist would walk through with you:

1. Existing bank loan: what it costs you to keep each month, and whether that changes if you refinance.
2. New money: the amount needed, the term and the exit.
3. Discharge costs: any fees your bank charges to release its mortgage, and any costs of repaying early. Ask the bank directly.
4. Set-up costs: the assessment fee shown on the Letter of Offer, plus legal and registration costs.
5. Interest structure: whether interest is prepaid or capitalised so there may be no monthly repayments during the term.

Illustrative example: a Melbourne engineering firm’s directors own a warehouse with a $1.2m bank loan in good standing, and they need $200k for six months to fund a contract until it pays. Illustrative: a second mortgage means private pricing applies only to the $200k while the $1.2m stays on bank terms. Refinancing would put all $1.4m on private pricing and add the bank’s discharge process. Here the second mortgage is clearly the leaner choice.

Now flip it. If the same firm were three months behind with the bank and needed $900k, one private first mortgage replacing everything would likely be the stronger plan. The which secured loan quiz takes about a minute and points you towards the right structure. Our guide to private mortgage costs explained breaks down every fee you might see.

How do timing and paperwork differ?

A refinance depends on the outgoing bank as much as the incoming lender. The bank needs notice to prepare a payout figure. As one public example, the Queensland Government asks its own borrowers for at least 10 business days’ notice before a discharge. The bank then signs a release of mortgage, which in Queensland is a Form 3 that must be lodged electronically unless an exemption applies.

In New South Wales, mortgages, discharges of mortgage and caveats moved to electronic lodgement from 1 July 2019, and since 11 October 2021 all land dealings, caveats and priority notices must be lodged electronically. Electronic lodgement speeds up the registry side considerably, but it can’t make a slow bank prepare a payout figure any faster.

A second mortgage avoids the payout step altogether. The usual pinch point is the bank’s permission for the further mortgage, so we ask for it on day one. Smaller amounts from $20k to $250k are possible the same day, and funding within 24–48 hours for up to $5m is possible once documents are in. If speed is your priority, you can ask how quickly your deal could fund.

Not sure which way to go? See if you qualify for either

You don’t have to choose before you talk to us. Tell us about the property, what’s owed to the bank, how the loan is tracking and what the money is for, and a specialist will run both options side by side.

There’s no credit check to make an enquiry, and your details don’t get sprayed across a panel of lenders. A real person who handles these deals daily reads your situation. Honest numbers on the property and the existing debt mean the first answer you get is the one that holds up at settlement.

Start your 60-second enquiry and find out which structure fits.