Refinancing With a Private First Mortgage: When It Makes Sense

Most borrowers who refinance to a private first mortgage are not leaving the banks for good. They are buying time — usually because a deadline arrived before the bank did. Used properly, that is a sound commercial decision. Used without an exit plan, it is expensive.

Five situations where it stacks up

1. Your current lender has called the loan

An expired facility, a covenant breach or a change in lender appetite can force repayment on short notice. A first mortgage refinance clears the existing debt, removes the pressure, and gives you six to twenty-four months to arrange a considered replacement instead of a fire sale.

2. You need cash out the bank will not release

Banks are cautious about cash out, particularly for business purposes or tax debt. A private first mortgage takes the same security position and releases equity, priced on the asset rather than a servicing calculator.

3. Your financials are not ready

Self-employed borrowers routinely have strong assets and a lodgement backlog. Refinancing privately while the accountant catches up preserves the deal; the bank refinance follows once the returns are lodged.

4. The property needs work before a bank will touch it

Unfinished renovations, a missing occupation certificate or a vacant commercial tenancy can all put a property outside bank policy. Fund the work privately, then refinance the completed, tenanted asset.

5. Timing beats price

If a two-week settlement protects a deposit or a purchase price worth far more than a few months of interest, the arithmetic is straightforward. Compare the cost of the facility against the cost of the deal falling over.

What it costs, honestly

Our first mortgages start from 8.75 per cent per annum with LVR to 75 per cent, and there are establishment, legal and valuation costs on top. That is more than a bank rate and less than the cost of a collapsed settlement. What matters is the total cost over the actual term you hold the facility, not the annualised rate in isolation. On a nine-month facility, a rate two points above a bank is a defined, calculable expense.

Plan the exit before you sign

Every private first mortgage should have a written exit with a date attached. There are only three real exits:

• Refinance to a bank or a longer-term lender, once the missing piece (financials, lease, certificate) is in place.
• Sale of the security property or another asset.
• A defined cash event such as a contract settlement, a capital raise or an asset realisation.

Ask yourself what would need to go wrong for the exit to fail, and what your fallback is. If you cannot answer that, the term is too short.

Practical points that save weeks

• Order the discharge from your existing lender the day you accept terms — this is the most common cause of delay.
• Confirm whether interest is capitalised or paid monthly, and how that affects the balance at expiry.
• Check for early repayment charges. Ours are nil, which matters when a bank approval lands early.
• Get every cost disclosed in writing before settlement, including legals and any line or exit fee.

Send us the security, the balance to be refinanced, the cash out you need and your intended exit. We will give you an indicative rate, LVR and timeline, obligation free.