What is a second mortgage?

A second mortgage is a charge over a property that already has another mortgage on it. The mortgages are ranked in the order in which they were lodged. In the event that the debt isn’t paid and the property is sold the lenders will receive their money in order of priority with the 1st mortgage being paid back before any money is paid to the 2nd or 3rd mortgagee.

For example if you had a mortgage with NAB for $100,000 secured on your home and you then applied for a $100,000 loan with ANZ this would be set up as a 2nd mortgage behind the NAB loan. In the event that you didn’t pay back your loans and the property was sold for $190,000 then NAB would be repaid in full and ANZ would receive whatever was left over.

Most people prefer to refinance their loan to another lender rather than obtain a 2nd mortgage.

From bank point of view 2nd mortgages are very poor security for a loan compared to a 1st mortgage. Because of the complexities of two lenders being involved and the low priority of the debt in the event that you default on your loan, most banks limit the amount you can borrow and would most likely refuse to do business with you.