Short answer: Refinance when you need a large amount for a long period and have the weeks it takes. Take a second mortgage when the money is needed quickly, the amount is modest against your equity, or your existing loan carries a rate you would not get again today.
The two ways to get at the same equity
If you own property with equity in it and you need money for your business, there are broadly two routes. You can replace your existing loan with a bigger one, which is a refinance. Or you can leave it alone and add a second loan behind it, which is a second mortgage.
Both get you to the same money. They differ in what they cost you elsewhere: your rate, your time, and your flexibility later.
| Refinance | Second mortgage | |
|---|---|---|
| Your existing loan | Replaced entirely | Untouched — same rate, term and repayments |
| Time | Typically several weeks | Days, sometimes a single day |
| Assessment | Full income and serviceability | Equity in the property and how the loan is repaid |
| Best amount | Larger, and for the long term | $20,000 to $5 million, usually short term |
| Credit history | Matters a great deal | Matters far less |
| Break costs | Possible on a fixed loan | None on the existing loan |
| Ongoing cost | Lower, spread over years | Higher, over a short period |
When is refinancing genuinely the better choice?
It usually is, if you can wait. Refinancing spreads the cost over years rather than months, and a single loan is simpler to live with than two.
Refinance when the need is permanent rather than temporary — buying premises, a long-term expansion, restructuring debt you will carry for years. Refinance when the amount is large relative to the property, because that is where the difference in ongoing cost is felt most. Refinance when you have current financials, a clean file and time in hand, because that is exactly the borrower a bank prices best.
And refinance when your current loan is on a rate you could improve on anyway. If you are going to move the loan at some point, doing it once and releasing the equity in the same transaction is tidier than doing two things.
When does a second mortgage win?
Four situations, and they come up constantly.
- The clock. A refinance that completes in five weeks is no use against a deadline in five days. This is the most common reason by a wide margin.
- The rate you already have. If your existing loan was written when rates were lower, replacing it to release $200,000 can cost you more over the remaining term than the second mortgage ever will. Do that arithmetic before anything else.
- The paperwork you do not have. No current financials, returns not yet lodged, a loss year that does not reflect the business today, or a recent restructure. A refinance stalls on all of these. A second mortgage does not ask.
- The credit file. Defaults, judgments, arrears or ATO debt will usually end a refinance conversation at a bank. Here they are context, not a verdict.
The arithmetic most people skip
The instinct is to compare the two rates and pick the lower one. That comparison is almost always wrong, because the two loans are not the same size, are not for the same length of time, and one of them changes the cost of a loan you already have.
The comparison that works is total cost over the actual period you need the money, plus anything the refinance does to your existing loan. A short-term second mortgage carries a higher rate over a handful of months. A refinance carries a lower rate but applies it to a much larger balance for years, and may replace a rate you cannot get back.
Take a business needing $150,000 for four months against a home worth $1.1 million with $520,000 owing at a rate written two years ago. The refinance releases the money more cheaply per dollar per year — and reprices $520,000 of existing debt for the next two decades to do it. Over four months, the second mortgage is very often the cheaper answer in total, not just the faster one.
Flip the facts — $600,000 needed for five years to buy the premises next door — and the answer flips with them. There is no general rule here, only the arithmetic on your numbers.
Can you do both?
Frequently, and it is often the best structure available.
A second mortgage taken today, with a refinance as its exit, gets you the money on the deadline and the cheap long-term debt afterwards. The refinance proceeds pay out the second mortgage when it completes, and the short-term loan runs for exactly as long as the refinance takes rather than as long as you can bear.
This works because the two processes run in parallel instead of in sequence. You are not waiting for the bank before you can act; you are acting now and letting the bank take the time it was always going to take. Tell us if that is the plan, because it changes the term we write and means you are not paying for months you will not use.
What we will tell you if refinancing is the right answer
That it is the right answer. This is short-term finance, and short-term finance that is asked to do a long-term job is an expensive mistake for everyone involved.
If your file would sail through a bank and your deadline is eight weeks away, you are better off at the bank, and we will say so. If it would sail through a bank but your deadline is Thursday, a second mortgage now with a refinance as the exit is usually the right shape.
The only situation where we will push back is where a refinance is being treated as certain when it is not yet approved. A refinance in progress is a good exit. A refinance that has been discussed is not an exit at all, and building a short-term loan on top of one is how a manageable situation becomes a difficult one.
Frequently asked questions
Will taking a second mortgage stop me refinancing later?
No. The second mortgage is discharged out of the refinance proceeds when it completes, which is one of the most common exits we see.
Does a second mortgage change my existing loan at all?
No. The rate, term, balance and repayments on your first loan stay exactly as they are. That is the main reason people choose it.
Which is cheaper overall?
It depends entirely on how long you need the money and what rate your existing loan carries. Over years a refinance is almost always cheaper. Over a few months it frequently is not, once the effect on your existing loan is counted.
Can I refinance if I have ATO debt?
A bank will usually want it cleared first, which is the loop most owners get stuck in. Clearing the debt with a second mortgage so the refinance can proceed is a well-worn path.
How much can I release either way?
Both are limited by the equity in the property. On a second mortgage that is measured as combined LVR — your existing loan plus the new one against the property's value.
Does it cost anything to apply?
No. There's no cost to apply or check your eligibility. All costs are set out in writing in your loan offer before you sign anything.
Will checking my eligibility affect my credit score?
No. Our 60-second eligibility check doesn't make a credit enquiry. A credit check is only done later, with your consent, if you decide to proceed.
