Most people who own a home already have a mortgage on it. When the business needs money, the obvious first thought is “top up the home loan” — until the bank asks for three years of financials, or says the purpose doesn’t fit, or wants to reprice the whole mortgage. A second mortgage is the alternative.
How does a second mortgage work?
A second mortgage is a separate loan, from a different lender, secured on the same property. It’s registered on the title behind your existing mortgage. Your first mortgage stays exactly as it is — same bank, same rate, same repayments, same fixed-term dates.
The order matters. If the property were ever sold to repay debts, the first mortgage is paid out first and the second mortgage after it. Because the second lender stands behind, it looks carefully at how much equity is left after the first mortgage.
For business purposes, a second mortgage can raise $20,000 to $1m depending on the equity available.
Why do business owners use second mortgages?
- The bank won’t top up. Financials are behind, last year was a loss, or the bank doesn’t like the purpose.
- Speed. No need to wait for a bank’s credit process. No financials or tax returns for the initial assessment, and funds can in some cases be paid within 24 hours of approval.
- Protecting a good home loan. If your first mortgage is fixed at a rate you’re happy with, breaking or restructuring it could cost you. A second mortgage leaves it untouched.
- Credit history. Bad credit, defaults and arrears are considered case by case.
- Keeping it separate. A distinct business facility, with its own term and repayment plan, is easier to track and to repay when the business is ready.
What can the money be used for?
Any genuine business purpose: clearing IRD debt, buying stock or equipment, buying a business, refinancing expensive business debt, a fit-out, or bridging a cash flow gap. It can’t be used for personal spending.
Who needs to agree?
- Everyone on the title signs the mortgage. If a trust owns the property, the trustees sign.
- The first mortgage lender may need to be notified or give consent, depending on your existing loan terms. Your lawyer will check.
- Guarantors. If the borrower is a company, directors usually give personal guarantees. Anyone giving security or a guarantee is normally required to get independent legal advice.
Our guide on first vs second mortgages explains priority, consent and registration in more detail.
What’s the catch?
Two things to go in with eyes open:
- Your home is security. If the business can’t repay, the lender can ultimately enforce. Borrow for things that clearly earn their keep, with a realistic plan to repay.
- Pricing reflects position. Because the second lender ranks behind the first, second mortgages are priced for that position. Every loan is priced on the individual situation, and we look across our lending partners for the sharpest option available for yours.
When is a second mortgage the wrong tool?
If you need a small amount for a short time and the business has solid turnover, an unsecured loan or line of credit may be simpler. If your bank is genuinely happy to top up your home loan quickly for a business purpose, compare that too. We’ll tell you if another option fits better.
How do I get started?
Have your property address, the approximate value and the first mortgage balance handy and ring the Hotline. A specialist will tell you quickly how much equity is realistically available. Or request a call back.