Second mortgage loans for Australian property

Security types and the combined LVR ceiling

Archer takes residential, commercial and vacant land security on a second mortgage, and the LVR ceiling applies across the combined position rather than to the new facility alone. That is the number that decides most files. A property at 62% on the existing first has clear room for a second. At 78% the room is thin, and whether anything fits depends on the security type, the value of the property and the minimum facility size, so it is worth checking rather than assuming.

Facilities start at $100,000 for a second mortgage. To size a request before it is written up, the second mortgage borrowing capacity calculator takes a valuation and a current first mortgage balance and returns the headroom. Where the answer is tight, the piece on sensible limits on a second mortgage is worth reading before the file is packaged, because a request at the ceiling with a thin exit is the shape that gets declined.

How first mortgagee consent works, and what happens without it

First mortgagee consent is usually required on a second mortgage, and it is the step that most often governs the timetable. Some first mortgagees treat the request as routine, others are slow, and some decline as a matter of policy. It is worth establishing the first mortgagee's position early in the file rather than late, because it is the one item on a second mortgage that no amount of packaging speeds up.

What the first mortgagee is being asked for is narrow. It is consent to a second-ranking interest being registered behind theirs, not a change to their own loan, their rate or their security. Where both lenders want the ranking and the enforcement order written down rather than left to the register, that is recorded in a priority deed. A broker who raises the request at the point the scenario is submitted, rather than after a letter of offer is issued, usually saves a week.

Where consent is refused, the file does not simply stop, but it does change shape. The realistic options are a refinance of the first mortgage into a single facility, which trades the rate on the existing first for access to the equity, or a different security property where one exists in the group. Occasionally a caveat is taken as additional security alongside a registered facility while consent is worked through. What does not work is proceeding on the assumption that consent will arrive: on a file with a settlement date, that is the assumption that breaks it.

What a second mortgage costs, and why it prices above a first

A second mortgage costs more than a first because the security position is junior, and the pricing reflects the position on title rather than the borrower. On a default the first mortgagee is repaid in full before the second-ranking lender receives anything. That is a real difference in recovery risk on the same property, and it is priced.

The cost of a facility is an interest rate set by security type and LVR, an establishment fee, and the third party costs of valuation, legals and discharge. Interest is commonly capitalised on short-dated files, so what a second mortgage actually costs depends on how long it runs as much as on the rate. Every band is published on the card of pricing by security and LVR, kept in one place rather than restated here. All pricing is indicative and subject to credit approval.

Why a file presented as a caveat need is usually written as a second

A broker arriving from a caveat search is often looking for a caveat-only facility, quoted and settled as its own product. That is not something Archer offers, and it is better said here than after a client has been taken through an application.

A file we settled

The file below is the second mortgage in its most recognisable form: a fixed first worth keeping, an ATO debt the bank would not refinance, and enough equity to solve it without touching the first.

The questions brokers ask