A caveat loan and a second mortgage look similar from a borrower's perspective — both are short-term loans secured against a property that already carries a senior (first) mortgage, both fund cashflow needs that can't wait for a refinance, and both price wider than a first mortgage. But the legal mechanics are different, and the difference matters when something goes wrong.
This guide draws the comparison cleanly — what each is, how recovery works on each, where each fits, and which one to ask your broker about.
What a caveat is, legally
A caveat is a statutory notice lodged on a property title under state-based real property legislation (in NSW, under section 74F of the Real Property Act 1900; equivalent provisions in other states). The caveat warns anyone dealing with the property — buyers, lenders, the Land Titles office — that a third party claims a legal or equitable interest in the land. It doesn't register a mortgage, but it stops the property being sold, refinanced, or further mortgaged without the caveator's consent.
A caveat loan is a loan secured by lodging a caveat on the borrower's property title. The borrower executes a loan agreement and grants the lender an equitable interest in the property; the lender lodges a caveat to protect that interest from being defeated by subsequent dealings.
What a second mortgage is, legally
A second mortgage is a registered mortgage, ranked second behind the existing senior mortgage on the title. It's a fully-registered security interest with the same statutory framework as a first mortgage — the lender has power of sale, foreclosure rights (where applicable), and a clear recovery position in priority order behind the senior.
Registering a second mortgage requires the senior lender's consent in most cases — bank mortgages typically contain consent-or-prohibition clauses. The second mortgage is recorded on the title and visible to anyone who searches.
Recovery position
This is where the two products differ most:
- Caveat loan recovery. If the borrower defaults, the caveat doesn't give the lender direct power of sale — the lender has to obtain a court judgment, register a writ, and force sale through the courts. Recovery can take 6–18 months depending on the state and the borrower's defence posture. Alternatively, the caveat lender often agrees to release the caveat on settlement of a sale, recovering from sale proceeds.
- Second mortgage recovery. A registered second mortgage gives the lender contractual and statutory power of sale, exercisable on default (subject to NCCP requirements where the loan is consumer credit). Recovery is more direct and faster — though still subject to the senior's prior right to be paid out first.
The recovery difference is why caveat loans typically price wider than second mortgages at equivalent LVR — the lender is taking more recovery risk for the same security position.
When a caveat loan fits
Caveat loans work best where the borrower needs speed and the first mortgage prohibits a second registration:
- Senior lender refuses second mortgage consent. Some bank mortgages prohibit subsequent registered mortgages outright. A caveat doesn't require senior consent to lodge (though some senior lenders treat lodgement as an event of default).
- Settlement-funded short-term need. Borrower needs $200k–$1m for 30–90 days while a property sale settles or a major-bank refinance lands. The caveat is lodged, the funds are advanced, the caveat is released at the settlement event.
- Tax debt or business cashflow. Short-dated liquidity against equity in a property, with a documented exit (sale, refinance, or business cashflow).
When a second mortgage fits
Second mortgages work best where the borrower has time, senior consent is achievable, and the loan is meaningfully sized:
- Working capital release behind a major bank first. 6–12 month tenor, $500k–$3m, combined LVR within standard envelope, documented exit on sale or refinance.
- Equity release for a second acquisition. Buying a second property using equity from the first as deposit; second mortgage on the first property clears at the second settlement.
- Bridging structured as a second mortgage. Where the senior accepts a registered second and the timeline allows for registration (typically 2–5 business days).
See the second mortgage loan guide for the full envelope, combined-LVR mechanics, and pricing.
Pricing comparison in 2026
- Caveat loan: 1.5–4% per month (18–48% per annum equivalent) on 30–90 day tenors, plus 1–3% origination. The high headline rate reflects the short tenor and the recovery risk on caveat-only security.
- Second mortgage: 11–14% per annum on 6–18 month tenors, plus 1–2% origination. Wider than a first mortgage at the same LVR but materially tighter than a caveat loan on equivalent risk.
For a borrower comparing the two on the same scenario, the second mortgage is almost always the cheaper structure if the senior allows it and the timeline permits registration. Caveat loans win on speed and on files where senior consent can't be obtained.
How Archer writes both
Archer Wealth writes both products through Archer Flex (second mortgages, registered) and Archer Rapid (short-dated property-secured liquidity, including caveat structures where the file genuinely needs them). The choice between the two products is a credit decision made on the file — the right structure is the one with the best recovery position for the lender and the lowest total cost for the borrower, given the timeline.