How much can you borrow on a second mortgage?

The only calculation that matters

Everything about second mortgage sizing comes down to one number: combined loan-to-value ratio. Add what you still owe on the property to what you want to borrow, divide by what the property is worth, and that is your combined LVR.

Lenders set a ceiling on that figure and your loan is whatever fits underneath it. Nothing else — not turnover, not your credit file, not how good the opportunity is — can push you above it, because the ceiling is there to make sure the property covers both loans if the exit fails.

Work it backwards to get your number: multiply the property value by the ceiling, then subtract what you owe. What is left is the most you can borrow.

That last row is the one people are surprised by. A $3 million property sounds like plenty of security until you notice that $2.3 million is already owing against it, which puts the existing loan alone at 77% and leaves nothing underneath. Value on its own does not create borrowing capacity. Equity does.

What moves your ceiling up or down

The 70–75% band is a starting point, not a rule. Several things move a particular file within it, and occasionally outside it.

• Property type. Metropolitan residential sits at the top of the range. Commercial and industrial are common and usually straightforward. Vacant land, rural holdings and specialised buildings sit lower, because they take longer to sell if it ever comes to that.
• Location. A property in a capital city or major regional centre supports more than the same building in a small single-industry town.
• How the value was established. A desktop valuation is fast and works for most standard properties. Larger loans and unusual properties need a full inspection, which sometimes lands on a different number than the owner expected.
• The strength of the exit. A contracted, dated repayment supports more than a general intention to refinance at some point.
• The term. A three-month loan and a twenty-four-month loan against the same property are not the same risk.

Why the calculator number is not always the offer

Three things regularly separate the figure an owner calculates at the kitchen table from the figure in the written offer, and all three are worth checking before you plan around a number.

The first is the property value. Owners tend to use what the neighbour's place sold for, or what a portal estimate said last year. A valuation is a different exercise, and on some properties it lands lower.

The second is what is actually owing. A redraw taken last year, a line of credit sitting behind the loan, or capitalised interest on an existing facility all count towards the first number in the calculation, and all are easy to forget.

The third is what else is on the title. An old caveat, a family arrangement registered years ago, or an unpaid rates charge all sit in the queue ahead of a new second mortgage and reduce what is available underneath the ceiling.

Our equity calculator → lets you move the LVR yourself and see the effect. Treat what it shows as a planning figure, not a commitment.

Does what I earn come into it at all?

Not in the way a bank means. There is no serviceability test, no requirement for current financials and no minimum trading period, because the loan is not being repaid out of ongoing income. It is being repaid out of a defined event.

What replaces income in the assessment is the exit. A settlement date, a contracted payment, a sale already listed, a refinance in progress, or a trading period with a clear reason why the money will be there at the end of it. That is the question we spend the most time on, and it is the one worth preparing for.

It does mean the answer to “how much can I borrow” has a second half. The ceiling tells you the most the property will support. The exit tells you how much of that it is sensible to take. Borrowing the full amount available because it is available, without a way to repay it, is not a strategy — and a lender who lets you do it is not doing you a favour.

Using more than one property

If a single property does not get you to the amount you need, a second one often will. Taking security over two properties is routine, and the combined LVR calculation simply runs across both.

This comes up most often where an owner has a home with a large mortgage and an investment property or commercial premises held more lightly. Neither on its own supports the loan; together they do comfortably.

It also opens a choice worth making deliberately: which property carries the loan. Many owners prefer to keep the family home out of the transaction entirely and use the investment or commercial property instead, even when the home would have worked. If you have the option, take it — it costs nothing and it keeps the home out of the file.

A worked file

A Melbourne panel shop needed $240,000 to buy the business next door when the owner retired unexpectedly and gave them first refusal with a three-week window.

The director's home was worth about $1.25 million with $610,000 owing, which at 75% combined left roughly $327,000 available — comfortably more than needed. The workshop premises, held in a family trust, would also have worked, but the home was in a single name with the signatory present, so it was the faster path.

The loan was written at $240,000 against the home, with the exit being a refinance of both businesses as a single entity once twelve months of combined trading figures existed. That refinance completed fourteen months later and paid the second mortgage out.

The point of the example is the order of operations. The ceiling set what was possible. The exit set what was sensible. The signatory availability set which property was used. None of those three questions is answerable from the property value alone.

Frequently asked questions