Quick answer
A second mortgage costs more than a first-ranking bank loan because the lender ranks behind another mortgage. Expect interest plus a set of one-off costs: establishment, lender legal fees, valuation, registration and, at the end, discharge. Pricing is set on your file, driven mainly by combined LVR, property type, loan size, term, credit history and how clear the exit is. Compare options by estimated total cost of finance, not headline numbers.
Key points
- Ask for the estimated total cost of finance in dollars over your expected term.
- One-off costs typically include establishment, legal, valuation, registration and discharge.
- Interest may be paid monthly, prepaid or capitalised; each affects cash flow and the buffer differently.
- Lower combined LVR, standard property and a clear exit are the biggest pricing levers.
- Priced on
- Your individual file
- Compare by
- Total cost in dollars
- Biggest lever
- Combined LVR
- We publish rates?
- Never
Why does a second mortgage cost more than a bank loan?
Ranking. A first-ranking lender is repaid first from any sale; a second lender is repaid only from what’s left. It carries more risk on the same property, and pricing reflects that. Second mortgages are also usually shorter-term and faster to arrange, and speed and flexibility cost money to deliver.
That doesn’t make a second mortgage expensive in context. If it clears an ATO debt accruing interest that is no longer deductible, keeps a first loan you’d hate to lose, or funds a contract that pays well, the cost can be the cheapest part of the decision. The question is always: what does it cost in dollars, and what does it save or earn?
What are the one-off costs?
| Cost | When it’s paid | What it covers |
|---|---|---|
| Establishment or application fee | At settlement | Assessing, structuring and setting up the loan |
| Lender’s legal fees | At settlement | Loan documents, mortgage, guarantees, consent requests |
| Valuation fee | Upfront or at settlement | The lender’s valuation of the property |
| Registration fees | At settlement | Government fees to register the mortgage on title |
| Title and company searches | At settlement | Searches on the property and any company or trust |
| Discharge fee | At payout | Preparing and registering the discharge when you repay |
Some loans also include a line fee or ongoing account fee. Ask for every fee in dollars, and ask which are payable if the loan doesn’t proceed.
How can the interest be paid?
- Monthly from cash flow. The balance stays steady. Best for businesses with reliable income.
- Prepaid. A set number of months’ interest is deducted from the loan at settlement. No monthly repayment during that period, but the cash you receive is lower.
- Capitalised. Interest is added to the balance as it accrues. Cash flow is protected, but the payout figure at the end grows and the equity buffer thins.
Which structure fits depends on what the money is for and where repayment comes from. A bridging loan repaid from a sale might sensibly capitalise; a working-capital loan repaid from trading usually shouldn’t.
What actually moves the price on your file?
- Combined LVR. The lower it is, the more comfortable the lender, and the sharper the pricing.
- Property type and location. A metro house is easier to value and sell than a specialised commercial building or a regional block.
- Loan size. Fixed costs weigh more heavily on small loans; very large loans have their own risk pricing.
- Term. Short, defined terms with a clear exit are easiest to price.
- Credit and tax position. Past defaults or ATO debt are considered case by case and may affect price more than eligibility.
- The exit. A signed contract of sale or refinance approval in principle is worth more than a hope.
Want the real dollars on your own scenario? Give us the figures and a specialist will set out the estimated total cost before you commit.
How should you compare offers?
Headline rates are the least useful comparison. Instead, ask each option for the estimated total cost of finance in dollars over the term you actually expect, including every fee and the discharge. Then check:
- What happens if you repay early? Is there a minimum interest period?
- What happens if you need an extra month or two? What does an extension cost?
- Is interest prepaid, capitalised or monthly, and how does that affect the net amount you receive?
Our calculator deliberately doesn’t ask for a rate. It works in LVR, equity and structure. When you’re weighing pathways, our comparisons of second mortgage vs refinance and second mortgage vs caveat loan set out the typical cost drivers for each.
Where does ATO debt fit into the cost comparison?
The ATO confirms that general interest charge (GIC) and shortfall interest charge (SIC) incurred on or after 1 July 2025 can no longer be claimed as a tax deduction. That changed the arithmetic for many businesses carrying tax debt on a payment plan, because the after-tax cost of leaving the debt with the ATO went up. Business loan interest may still be deductible depending on your circumstances. It’s a comparison worth running with your accountant; our page on second mortgages for ATO debt explains how the loan side is structured.
Illustrative example: comparing two structures by total cost
An owner needs $200,000 for six months until a commercial property sale settles. Option one pays interest monthly from trading. Option two capitalises it. Both have similar fees. Option two costs slightly more in total because interest accrues on interest, but it frees cash flow during the busiest trading period of the year. Neither is “cheaper” in a vacuum; the right answer depends on what that cash flow is worth to the business. These figures and choices are illustrative only.
Get a real cost, not a teaser number
We don’t publish rates because every file is priced on its own merits and we’d rather give you an accurate number than an attractive one. The enquiry takes a minute, with no credit check at the enquiry stage.
Your details stay with one specialist rather than being distributed to a pile of lenders. They’ll look at your combined LVR, property and exit, then call you with a structure and a total-cost estimate you can compare properly. Accurate figures on the form mean the estimate you hear is one that holds up.
Frequently asked questions
Why don't you publish interest rates?
Because every second mortgage is priced on its own facts: the property, the combined LVR, the term, the purpose and the exit. A published 'from' number would be misleading for most owners. We give you a real figure once we understand the file.
Can fees be added to the loan?
Often, yes. Many costs can be paid from the loan at settlement. That means less cash upfront, but the gross loan is larger, which increases combined LVR.
Is there a penalty for repaying early?
It depends on the loan. Some have a minimum interest period or an early repayment fee; others don't. Ask for this in writing before you sign, especially if your exit might come early.
What is capitalised interest?
Interest that is added to the loan balance rather than paid monthly. It helps cash flow during the term but increases the amount owed at the end.
Are the costs tax deductible?
Costs of borrowing for business purposes are often deductible, but it depends on your structure and use of funds. Ask your accountant.