A Second Mortgage That Unlocked Equity Without Touching a Cheap Bank Loan
A worked example of a $600k second mortgage that unlocked working capital while keeping a cheap bank first mortgage in place. How the security choice made it fund.
Refinancing an entire facility just to release equity often costs more than it returns. A second mortgage can be the smarter path. Here is a worked example of how one would be structured.
This is a hypothetical worked example, not a transaction Vía Private has funded. Figures are indicative and do not represent an actual client.
The situation
Say a trading company needs $600,000 of working capital. It holds an investment property with a $1,000,000 first mortgage from a major bank. Refinancing the whole facility to release equity makes no sense, because the company would lose a cheap first mortgage and wear break costs to reach funds it could get at another way. That is the usual reason people leave the bank alone, and Dover Heights is the same scenario written against a long-held, cheaply priced facility on a real local number.
How the facility would be sized
- Borrower: private company (Pty Ltd), business purpose
- Security: residential investment property, valued at $2,400,000
- First mortgage (kept in place): $1,000,000 with a major bank, about 42% of value
- Second mortgage: $600,000, which is 25% of value on its own
- Combined position: $1,600,000 of total debt, or 66.7% of value
- Term: 12 months
How it would work
We'd sit behind the bank as second mortgagee, so the client keeps their senior debt completely untouched. The number that matters is the combined position. A $1,000,000 first mortgage plus a $600,000 second is $1,600,000, which is 66.7% of the $2,400,000 value and comfortably inside our limits. After establishment costs and legals the borrower would draw about $580,000 in usable working capital.
The detail that would decide it
Suppose the client offered a different property instead, valued at $1,600,000 with $1,150,000 already owing. That is an existing loan-to-value ratio of about 72%, which leaves only around $50,000 of room, nowhere near the $600,000 they need. Moving the second mortgage to the property with far more equity is what makes the difference. Same borrower, same funds, but choosing the right security is what decides whether it is fundable at all, so where the mortgage sits changes what is possible. The same structure on other Sydney values is worked through for Mosman and Willoughby, if it helps to see it against a number closer to your own.
Broker takeaway
You do not have to refinance a good first mortgage to release equity. A second mortgage can be faster and simpler, and picking the strongest-equity security in your client's portfolio can be the difference between a decline and a workable facility. Our minimum second mortgage is $500,000.
Talk to Vía Private
Vía Private provides second mortgages and equity-release finance to companies and trusts across NSW, VIC, QLD and the ACT. Brokers welcome.
Hypothetical example only, not a transaction Vía Private has funded. Vía Private is an Australian non-bank private credit lender providing property-secured commercial loans to companies and trusts for business and investment purposes. All lending is subject to credit approval and valuation. General information only, not financial or credit advice.