Second mortgages for business purposes

Last updated 6 November 2026 · Reviewed by 360 MMS Compliance

What is a second mortgage?

A mortgage gives a lender security over a property for a loan. A second mortgage is another loan secured over the same property, registered behind the existing first mortgage. The order matters: if the property is sold, whether by you or by a lender enforcing its security, the first mortgage is repaid in full before anything goes to the second lender.

A second mortgage doesn't replace your existing loan: the first loan keeps running on its own terms, and you have obligations under both.

Do I need the first lender's consent?

Often, yes. Many mortgages say you can't give another mortgage over the property without the first lender's written consent, and going ahead without it could put you in breach of your first loan. In general terms:

• your first lender decides whether to consent, and it may set conditions or decline;
• the lenders may sign an agreement setting out who is repaid first, sometimes called a priority deed;
• the first lender may charge a fee and take time to respond, so ask early.

Your broker can help you check what your existing loan documents say before you apply.

When do businesses use a second mortgage?

• Working capital: funding stock, wages or a large contract while income catches up.
• A time-limited opportunity: such as buying equipment or stock, or paying a deposit on a commercial property.
• Bridging a gap: while a property is sold or longer-term finance is arranged.
• Keeping the first loan in place: where refinancing the whole first loan would cost more, for example because of break costs on a fixed rate.

The business purpose is confirmed and documented before the loan goes ahead. A business-purpose second mortgage can't be used for personal, domestic or household needs, including buying or refinancing a home to live in.

Why does the exit strategy matter?

Private second mortgages are usually interest-only or have capitalised interest, and they're repaid at the end rather than over a long term. The exit strategy is how that happens, usually by:

• selling the property, with the proceeds repaying both mortgages in order; or
• refinancing into a single longer-term loan when the business is in a position to do so.

The lender will want to see a realistic exit before making an offer. If a sale or refinance takes longer than expected, more interest builds up and less equity is left, so talk to your broker early if your timeline changes.

What does a second mortgage cost?

A second mortgage generally costs more than a first mortgage, because the lender ranks second and the loan is short term. Costs to ask about include:

• Interest: with capitalised interest, it's added to the loan, so you pay interest on interest.
• Fees and charges: such as establishment, valuation and legal costs, plus any fee from the first lender for its consent or a priority deed.
• Exit costs: selling or refinancing costs, and any break costs on the first loan if you later refinance it.

Each loan is quoted individually, with no rate sheet, and your broker can set out the expected total cost.

What are the pros and cons of a second mortgage?

Possible advantages

• You can raise funds against equity without refinancing your existing loan.
• Your first loan's rate, features and terms stay in place.
• The deal is looked at as a whole: the property, the borrowers, the purpose and the exit.

Possible disadvantages

• It generally costs more than a first mortgage, and capitalised interest makes the balance grow.
• You need the first lender's consent, which it may refuse or attach conditions to.
• Two loans over one property means two sets of obligations. Falling behind on either can put the property at risk, including your home if it's the security.
• These loans aren't regulated by the National Credit Code, so its consumer protections don't apply in the same way.

How do I apply for a second mortgage, step by step?

1. Talk to your broker or our team. Share the business purpose, the property and your first mortgage.
2. Check the first lender's consent. Your broker can help you check your loan documents and ask for consent early.
3. Get a quote. The structure is talked through and the loan is quoted individually, with no rate sheet.
4. The assessment. The lender assesses the security, the borrowers, how the funds will be used and the exit against its criteria, and a valuation is part of the process. Every borrower signs a business purpose declaration.
5. The offer. If the loan is approved, you receive a loan offer and documents. Get independent legal and financial advice before you sign.
6. Settlement. The second mortgage is registered behind the first, and the funds are released.

How can 360 Private help?

For a second mortgage, the team can:

• talk through the business purpose, the property and your first mortgage before you apply;
• explain what the lender will need, including details of the first loan and the consent process;
• look at the whole deal: the security, the borrowers, how the funds will be used and how the loan will be repaid;
• quote the loan individually, then work through application, valuation and approval, subject to the lender's assessment;
• work with your broker, or with you directly;
• point you to other structures worth comparing, such as a business-purpose loan secured by residential property.

FAQs

Sources and further reading:ASIC: National Credit Code · Moneysmart: Equity · business.gov.au: Choose your funding

General information only. It doesn't take into account your objectives, financial situation or needs, and it isn't credit, tax or legal advice. 360 Private loans are for business purposes only, aren't regulated by the National Credit Code, and are subject to lending criteria; fees and charges apply. Kuone Pty Ltd T/As 360 MMS (ABN 81 621 683 672), Australian Credit Licence 504193.