Second mortgages, explained

A second mortgage sits behind an existing first mortgage on the same title. If the property is ever sold to recover debt, the first mortgagee is paid in full before the second sees anything. That ranking explains nearly everything about how these facilities are priced and assessed.

When it is the right structure

The strongest case is an existing first mortgage worth keeping - a low fixed rate, or a facility that would attract meaningful break costs to refinance. A second mortgage releases equity while leaving that arrangement untouched. Refinancing the whole position to access a modest amount of capital can easily cost more than the top-up itself.

• The first mortgage carries a rate or term worth preserving
• The capital requirement is modest relative to the existing debt
• Timing is tight and a full refinance cannot complete in the window
• Combined LVR across both loans remains conservative

The number that decides it

Combined LVR - the total of both loans measured against the property value - is what a second mortgagee underwrites. A second mortgage taking combined exposure to 55% is a materially different proposition to one reaching 70%, our combined ceiling, and it will be priced accordingly. Calculate this figure before applying, because it determines both the availability and the cost.

A second mortgage prices the equity buffer sitting behind the first loan. The thinner that buffer, the sharper the pricing.

The consent step people forget

Most first mortgages prohibit further security without the first lender's consent, and a second lender will usually want a deed of priority with the first, recording the order in which the two are repaid and how much the first can rank ahead for. Some first lenders grant consent routinely, others are slow or decline outright. This is the most common cause of a delayed second-mortgage settlement, and it is worth confirming at the outset rather than a week before the deadline.

Handled properly, a second mortgage is a precise way to access equity without dismantling a good arrangement. Used to stretch an already-thin position, it compounds the problem it was brought in to solve.