Key points
- Caveat loans are faster and smaller. Second mortgages allow larger amounts and longer terms.
- Second mortgages usually need your first lender's consent; caveats often don't.
- Both put the property at risk, so the exit plan matters most.
If you own property with a loan already against it, there are two common ways to borrow against the equity above that loan without refinancing it: a caveat loan and a second mortgage. They sound similar and are often offered by the same lenders, but they suit different situations.
The short version
| Feature | Caveat loan | Second mortgage |
|---|---|---|
| Security | A caveat lodged on the title | A registered mortgage behind the first |
| Typical speed | Days | One to three weeks |
| First lender consent | Often not needed | Usually needed |
| Typical term | One to twelve months | Three to 36 months |
| Typical size | Smaller | Larger |
| Cost | Higher, with fees a big share of the total | Usually lower than a caveat loan over a longer term |
Typical ranges only. Each lender sets its own terms.
When a caveat loan fits better
- A deadline measured in days, such as a director penalty notice or a settlement date.
- A short need with a definite repayment, like a contract payment or a property sale.
- Your first lender won't consent to a second mortgage in time.
Speed is the main advantage. Because no new mortgage is registered, and first lender consent often isn't needed, settlement can happen within a few business days of a complete application.
When a second mortgage fits better
- A larger amount, or a need that will take a year or more to repay.
- Your first lender is willing to consent.
- You want lower overall cost and can wait a week or two longer.
A registered mortgage gives the lender stronger security than a caveat, which usually means larger loans, longer terms and better pricing.
What they have in common
- Both are secured by property, so the property is at risk if the loan isn't repaid.
- Both cost more than a first-mortgage bank loan.
- Both depend on a clear exit. Lenders will ask exactly how and when you'll repay.
- Both must be for a genuine business purpose to be arranged as business lending.
A third option
Sometimes the better answer is a private first mortgage that refinances the existing loan and adds the extra funds in one facility. That removes the need for consent and can simplify things when the existing lender is unhelpful. See private lenders.
Read more on caveat loans and second mortgages.
General information only. It doesn't take your circumstances into account and isn't tax, legal or financial advice. Speak to your accountant or a lawyer about your situation.