Glossary
Second mortgage
Also called: second registered mortgage, subordinate mortgage
A second mortgage is registered on a property that already has a first mortgage. It ranks behind the first, so the second mortgagee is paid only from what remains after the first mortgage has been repaid in full on a sale.
An example
A company director needs funds for a business opportunity and does not want to refinance the home loan. A private lender agrees to lend against the remaining equity, registering a second mortgage behind the bank once the bank consents.
Why it matters
Because a second mortgagee carries more risk, second mortgage loans are generally priced higher and limited by combined LVR. Many first mortgages prohibit further security without consent, and a default under one loan can trigger a default under the other. Borrowers should read both agreements together.
Points to check
Ask your first lender whether its documents allow a second mortgage and whether it requires consent or a deed of priority. Check how the second lender calculates combined LVR and what happens if the first lender enforces. Second mortgages usually cost more than first mortgages because of the higher risk. Compare all fees and the exit plan before committing.
Read about second mortgage loans