How much equity do you need for a second mortgage or caveat loan?

“How much equity have I got?” is the question behind almost every short-term property loan. The honest answer is usually a little less than owners expect — not because lenders are stingy, but because three numbers move once a lender gets involved: the value, the debt and the loan itself. Here’s how the arithmetic actually works, so you can run it yourself before you call.

What does LVR mean on a second mortgage?

ASIC’s Moneysmart defines loan-to-value ratio as the loan amount divided by the value of the asset, expressed as a percentage. On a home loan that’s a single loan against a single value.

Behind a bank, it becomes combined LVR. We add up everything secured on the property — the bank’s first mortgage, anything else registered or caveated, and our own loan — and divide by the value. The formula:

Combined LVR = (first mortgage payout + any other secured debt + new loan including costs) ÷ lender’s valuation

Each lender sets a maximum combined LVR for each deal. That ceiling moves with the property type, its location and how saleable it is. A house in an established suburb sits at the generous end; a specialised building or a remote block sits lower.

Which numbers go into the calculation?

Input	What to use	What owners often use by mistake
Value	Our valuation of the property today	An online estimate or the price a neighbour got
First mortgage	The bank’s written payout figure	The balance showing in your banking app
Other secured debt	Every other mortgage or caveat on title	Forgetting an old private loan or a family caveat
New loan	The amount you need plus all costs	Only the amount you need in your hand

A few of these deserve a closer look.

The payout figure. Redraws, arrears, break costs on fixed loans and accrued interest can all make the payout higher than the balance you see. Ask your bank for a written figure.

What’s on title. Your title search is the authority. In Victoria, the register search statement lists mortgages, caveats, covenants and notices as encumbrances; Titles Queensland’s current search shows mortgages, leases and caveats among the registered interests. Anything that’s on there counts.

The loan amount. Establishment, legal and valuation costs — and, on many short-term loans, interest that is prepaid or capitalised — form part of what’s secured. They use equity just like cash does. Our page on what short-term loans cost breaks down how those items are structured.

A worked example: three owners, one formula

Illustrative only — round numbers, no real people. The 70% ceiling below is for illustration, not a quoted limit.

Suppose a lender is willing to go to a combined 70% on each of these properties.

	Owner A	Owner B	Owner C
Lender’s valuation	$1,000,000	$800,000	$600,000
70% of value	$700,000	$560,000	$420,000
Bank payout figure	$400,000	$480,000	$390,000
Room for new loan incl. costs	$300,000	$80,000	$30,000
Amount needed in hand	$200,000	$100,000	$50,000

• Owner A has plenty of room. A $200,000 loan plus costs fits comfortably, with a buffer if the valuation lands lower than expected.
• Owner B is short. Gross equity looks like $320,000, but the usable slice at 70% is only $80,000 — and that has to cover costs as well. Options: a smaller loan, a second property as extra security, or a property type that supports a higher ceiling.
• Owner C doesn’t fit on this property alone. A second property, or an unsecured option sized on turnover for a trading business, may be the answer.

Want a quick read on your own numbers? Try the borrowing calculator, or skip straight to an enquiry and we’ll run it with you.

What can lower the value a lender uses?

The valuation is where most surprises happen. Common reasons it comes in below an owner’s figure:

• Recent sales are weaker than the ones you remember, or the market has eased.
• Unapproved works — an extension or granny flat without permits may be discounted.
• Condition — deferred maintenance, damage or an unfinished renovation.
• Thin markets — few comparable sales in a small town or for an unusual building.
• Commercial vacancy — an empty shop or warehouse is usually valued more cautiously than a leased one.

Our page on valuations for short-term loans covers what the valuer looks at and how to help the inspection go smoothly.

Can two properties be combined?

Yes, and it’s common. If one title has thin equity, a second property — yours, a co-owner’s with their agreement, or one held by your company or trust — can be added. Each property is secured in the right form for its state: a caveat over Victorian property, a registered second mortgage over property elsewhere, or a first mortgage where a title is clear. The combined LVR is then worked out across the properties together.

Where none of your property has room, it’s worth knowing the equity release business loan route and our unsecured options for trading businesses, typically $5,000 to $500,000 sized on turnover and bank statements.

Does the structure change how much I can borrow?

Not the arithmetic — the formula is the same whether the security is a caveat in Victoria or a registered second mortgage in Queensland. What changes the result is the property itself and what’s ahead of us on title. A clear title can support a short-term first mortgage, which usually reaches further than a loan sitting behind a bank. See the unregistered second mortgage page for how the three structures compare.

Know your numbers? Let’s test them properly

If you’ve worked through the table above, you already know more than most people who call us. The next step is to put real figures against your property.

The enquiry asks a handful of questions and takes about a minute. There’s no credit check when you first enquire, and we don’t send your information out to a stack of lenders to see who bites. A real person runs your equity and calls to talk through what’s possible. Please give us an honest estimate of value, the actual amount owing, the state the property is in and the date you need the funds — accurate inputs give you an answer you can rely on.

Run my equity with a specialist →