Short-term private mortgage: borrowing for months behind your bank

Some business needs have a natural end date. A customer will pay in March. A block of land will settle in five months. The bank has said yes to a refinance once two more quarters of figures are lodged. In the meantime the money is needed now, and the bank loan already on the property is perfectly fine where it is.

That’s the job of a short-term private mortgage: a temporary second layer that sits behind your bank, covers the gap and comes off the title when the end date arrives. If you own the property outright, or want the bank gone entirely, our short-term first mortgage page is the better fit.

Why does a second position suit a short need?

A second mortgage or caveat loan leaves the first mortgage alone. For a need measured in months, that has real advantages:

• Your bank loan keeps its pricing and term. You only pay private pricing on the extra amount, and only while you need it.
• There’s nothing to unwind later. When the exit arrives, the private loan is repaid and discharged; the bank loan carries on.
• It’s quicker to set up than a full refinance. There’s no bank payout to arrange, though you may need your bank’s consent.
• It can be done by caveat. For very short or very urgent needs, a caveat loan can be put in place quickly and converted to a registered second mortgage later if more time is needed.

Lodgement itself is now quick. Queensland, for example, has required mortgages, releases and caveats to be lodged electronically since February 2023, and Victoria’s registry notes that many electronic instruments, including mortgages and caveats, are registered or recorded very soon after lodgment.

How should you size the term?

Start with the event that repays the loan, then build the term around it:

Exit event	Typical things that delay it	Sensible buffer
Customer or contract payment	Invoice disputes, sign-off delays	A month or two past the due date
Property sale already under contract	Buyer’s finance, settlement extensions	A few weeks past settlement
Property sale not yet listed	Marketing time, price negotiation, buyer’s finance	Several months
Bank refinance	Financials to lodge, bank assessment time	A quarter past the date you expect approval
Tax refund or grant	Processing time, review by the agency	A couple of months

Because terms are open, the buffer isn’t a cost you lock in. If the exit arrives early, you repay early with no penalty. The buffer simply means a late exit doesn’t become a crisis. Our guide to exit strategy for a short-term mortgage helps you stress-test the date.

What should you ask your bank before adding a short-term layer?

A short-term second mortgage depends on the loan underneath it behaving predictably. Five questions to your bank, asked on the first day, remove most of the surprises:

• Does my mortgage need your consent for a further mortgage or caveat? Many do. Ask where the request goes and how long it usually takes.
• What exactly is owing today? Ask for a current balance, including any redraw you’ve used and any fees charged recently.
• Is any facility due for review or renewal in the next year? A bank review landing in the middle of your short-term plan changes the exit.
• Does the mortgage secure other facilities too? An overdraft or card limit secured by the same mortgage ranks ahead of us as well, so it counts as debt on the property.
• Are all repayments up to date? A missed payment on the first mortgage is the most common thing that turns a smooth short-term loan into a complicated one.

Pass the answers to our specialist with your enquiry. Our first mortgagee consent guide explains the consent step in more detail.

What does holding it longer actually cost?

Two kinds of cost sit inside a short-term private mortgage, and they behave differently:

• One-off costs: the commitment fee, legal costs and registration. You pay these whether the loan runs three weeks or nine months.
• Time-based costs: interest, which builds for every month the loan is open.

That’s why a short-term loan is cheapest when it’s genuinely short. A loan repaid in four months costs far less than the same loan left open for a year, even though the set-up costs are identical. Interest is capitalised for up to 6 months, so there are no repayments in that period, but the balance grows and the exit must cover it.

Interest on money borrowed for a business purpose can be deductible; the ATO’s guidance on operating expenses covers the principle, and your accountant confirms how it applies to you. See our total cost of a short-term loan guide for a worked comparison.

Want to see what your equity supports before you plan the term? The 60-second loan check is the quickest start.

Illustrative example: five months to a contract payment

A Geelong joinery business has won a fit-out contract for a hotel. Materials and wages for the first stage need $220k now; the first stage payment is due in about four months. The owners’ factory is worth around $1.2m, with a $450k bank loan.

Illustrative only. A short-term second mortgage of $220k is registered behind the bank after it gives consent. The term is planned around five months: four to the payment and one as a buffer. Interest is capitalised, so the business makes no private loan repayments while it builds. The stage payment arrives in week 17, the loan is repaid early with no penalty, and the second mortgage is discharged. The bank loan never changed.

What if the short term starts to run long?

Plans slip. What matters is spotting it early and choosing the right response:

1. The exit is delayed, but still certain. Talk to us about running the loan a little longer. Open terms make this straightforward; the cost is the extra interest. Our guide to loan term extensions covers what to prepare.
2. A caveat loan needs to run longer. Convert it to a registered second mortgage. Our caveat conversion guide explains how.
3. The need has become permanent. Consider refinancing the bank and the private loan together into one first mortgage, then on to a bank. Compare the options on our second mortgage vs refinance page.
4. The exit has fallen over. Work out a new exit straight away, such as selling a different asset or a refinance elsewhere. Waiting only adds cost.

Who shouldn’t use a short-term private mortgage?

It’s the wrong tool when:

• the need is ongoing, such as covering losses every month;
• there’s no identifiable event that repays it;
• the bank loan underneath is already in arrears, in which case refinancing a loan in default is the bigger issue;
• the amount is small enough that a supplier extension or short overdraft would cost less than the set-up costs;
• the purpose isn’t business. These loans are for business purposes only.

Need a few months of breathing room? See if you qualify

If your bank loan is fine and you need extra funds for a known stretch of time, a short-term private mortgage is built for you. Tell us about the property, what is owing to the bank, how much you need and the event that will repay it.

The check takes about a minute. There’s no credit check when you enquire, so your file stays exactly as it is. We’re a direct lender: your details aren’t passed around to multiple lenders. A specialist reads your answers and calls you, so please answer accurately, especially on the exit date.

Check your short-term private mortgage →