A caveat loan is faster to settle and more expensive. A second mortgage takes longer and costs less. The reason is procedural: a second mortgage requires the existing first mortgagee to consent to being ranked ahead of a new registered interest, and getting that consent takes time. A caveat does not require it, which is why it can settle in days. Both sit in the short-term private lending end of the market.
What a caveat actually is
A caveat is a notice lodged on a property title recording that someone claims an interest in it. It does not itself create security in the way a mortgage does; it prevents dealings with the title without the caveator being notified, which in practice stops a sale or refinance proceeding without the lender being paid out. What is a caveat loan covers the mechanics in more detail.
Because lodging a caveat does not require anyone else's agreement, a caveat lender can move quickly. They assess the property, the equity available behind the existing debt, and the exit, and they can settle in a matter of days where the file is clean.
The weakness is the flip side of the speed. A caveat is a weaker and more contestable position than a registered second mortgage, and it can be challenged. Lenders price that risk, which is a large part of why caveat loans cost what they do.
What a second mortgage is
A second mortgage is a registered security interest ranking behind the first mortgage. If the property is sold or enforced, the first mortgagee is repaid in full before the second mortgagee receives anything, and the second mortgagee is repaid before the owner.
It is a stronger position than a caveat, and it is priced accordingly, meaningfully cheaper for the same borrower and property. The cost of that is the first mortgagee's consent, which usually takes weeks and is sometimes refused outright. Some lenders will not consent to any second mortgage as a matter of policy.
Where consent is achievable and time allows, a second mortgage is almost always the better economic outcome. The question is rarely which is better in the abstract. It is whether you have the weeks.
Choosing between them
Take the caveat route when the timeframe is genuinely days rather than weeks, when the first mortgagee will not consent or the delay in asking would kill the transaction, and when the term is short enough that the higher cost is bounded.
Take the second mortgage route when you have the time, when consent is realistically obtainable, and when the term is longer, because the cost difference compounds with duration. A four-week bridge at a high rate is an inconvenience. The same rate over nine months is a material amount of money.
One practical point: some lenders will settle quickly on a caveat and then convert to a registered second mortgage once consent is obtained, repricing at the lower rate. If the timeline is tight but consent is likely, ask whether that path is available.
What both lenders assess
The equity available behind the existing debt is the primary question. Both are lending into whatever value remains after the first mortgage, and if that margin is thin neither product works at any price.
The exit is the second, and on short-dated facilities it matters more than the borrower's income. A contracted sale, a formally approved refinance, or a documented receipt is what makes the deal fundable. When to walk away from a bridging loan sets out the checklist, and it applies to both products equally.
Property type and marketability matter too. A standard residential or commercial property in a metropolitan area is straightforward. Specialised, rural or difficult-to-value property narrows the lender panel and widens the pricing on either structure.
The costs to ask about specifically
Establishment fees, legal costs on both sides, valuation, and the lender's own legal and settlement costs, which on short-dated private lending are often a meaningful proportion of a small facility.
Whether interest is capitalised or serviced monthly, and what the payout figure looks like at the expected exit date and three months beyond it.
Extension terms and cost, agreed before you settle rather than negotiated when you need one.
And on a caveat specifically, what happens if the caveat is challenged or if the first mortgagee objects to it, because that is the risk the pricing is compensating for.
Where to from here
We arrange caveat loans and second mortgages and commercial bridging across our whole lender panel, and a large part of the value is knowing which lenders will consent, which will settle fastest, and when the cheaper structure is achievable inside your timeframe. There are no fees to clients; the lender pays us when the finance settles. Book a 20-minute brief.
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