A caveat loan is a short-term loan secured by a caveat lodged over property, rather than by a registered mortgage. It is the fastest form of property-secured business finance available in Australia: settlement in 2 to 7 days is common, where a registered second mortgage would take 4 to 8 weeks. The trade-off is cost. This article covers how it works, what it costs, and when it is the right call. For context on the broader category, read what is bridging finance first.
What "caveat" actually means
A caveat is a notice lodged with the state titles office that warns prospective buyers and dealers that someone has an interest in a property. It does not have the legal force of a registered mortgage. It does not give the holder a power of sale. But it does sit on the title and effectively prevents the property from being sold or refinanced without the caveat being addressed.
A caveat loan uses that mechanism as informal security. The lender lodges a caveat over your property in exchange for advancing the loan. The borrower agrees to repay within the agreed term; if they do not, the lender takes further action (which usually means converting the caveat to a registered mortgage and then exercising power of sale, or negotiating a settlement).
How a caveat loan works in practice
You approach the lender with a short-term funding need and a property that has equity. The lender assesses the property value (often via a desktop valuation rather than a full physical inspection, which is part of why caveat loans are so fast), confirms there is enough equity to cover the loan plus interest, and prepares loan documentation.
Settlement happens within days. The lender lodges the caveat at the state titles office and advances the funds to your account. You use the funds for the agreed purpose. When the exit event happens (a sale, a refinance, an incoming settlement, an asset disposal), you repay the loan and the caveat is withdrawn.
Most caveat loans run from 30 days to 12 months. Many include capitalised interest (added to the loan balance and paid at the end) rather than monthly repayments, which suits situations where cash flow during the term is constrained.
What does a caveat loan cost?
Caveat loans are the most expensive form of property-secured lending. The numbers vary by lender, deal size, property type and risk profile, but typical ranges:
Interest rates: 12 to 25 per cent per annum (capitalised, usually).
Establishment fees: 1 to 3 per cent of the loan amount, sometimes more.
Legal and valuation costs: typically a few thousand dollars.
On a $300,000 caveat loan for 90 days at 18 per cent capitalised plus 2 per cent establishment fee, the all-in cost is roughly $19,000 to $22,000. That is real money and meaningful only if the situation actually requires the speed and certainty of caveat lending.
When a caveat loan makes sense
Caveat lending fits genuinely time-sensitive situations with a clear exit. The recurring patterns:
A settlement that has to happen within days and a registered mortgage would not approve in time.
A property sale that is contracted but not yet settled, where the proceeds will repay the loan within weeks.
A business acquisition with a tight deadline, where the long-term acquisition finance will refinance the caveat once the longer process completes.
A tax-deadline situation where a payment is due now and a refund or proceed is incoming.
In each case the structure is the same: short, secured, expensive, with a documented exit. The decision to use caveat lending is really a decision about whether the value of the time saved exceeds the cost of the loan.
When it is the wrong answer
Caveat lending is the wrong answer when the exit is uncertain, when the property security is thin, when the loan would eat most of the value it was supposed to unlock, or when a slightly slower but much cheaper structure would work just as well.
The specific scenarios we walk clients away from: caveat loans being used to "buy time" without a credible repayment plan; caveat loans secured against properties where the equity is tight and a forced sale would not cover the loan; and caveat loans being used to fund ongoing operating losses rather than a defined short-term need.
The same brokerage discipline applies as with the broader bridging finance category: solve the actual problem, not the symptom.
Caveat loan vs second mortgage vs bridging loan
A caveat loan is the fastest form (days), with the highest cost. A registered second mortgage takes longer (weeks) and costs less but still sits behind your first mortgage. A formal bridging loan is somewhere between the two in speed and cost, usually secured by a registered mortgage rather than a caveat.
If you have 4 to 8 weeks available, a second mortgage or formal bridging loan will almost always be cheaper. If you genuinely need money within a week, caveat lending is often the only option. The brokerage job is to be honest about which situation you are actually in.
Where to from here
We arrange caveat loans and other short-term and private finance across our panel of specialist lenders. You pay us nothing; the lender pays us a commission once the loan settles. We will tell you honestly if a slower, cheaper option would work just as well. Book a 20-minute brief to talk through your situation.
Want to talk specifics?
Twenty-minute brief, no obligation.
A real broker on the other end of the line. No fees to clients.
