Quick answer
A first mortgage is the registered mortgage that ranks ahead of every other mortgage on a property's title. If the property is sold, after selling costs the first mortgagee is repaid in full before any second mortgage or caveat holder receives a cent. Because that position carries the least risk, first mortgage business loans are usually the cheapest and longest property-secured option.
Key points
- Ranks first for repayment from the property's sale proceeds
- Under Torrens title, mortgages generally rank in the order they're registered
- Lowest-risk position for a lender, so usually the lowest total cost
- An unencumbered property lets a business borrower offer a first mortgage
Think of a property title as a queue. Every lender with a registered mortgage over the land stands somewhere in that line, and the one at the front holds the first mortgage. When the property is sold, whether by choice or by a lender enforcing its security, the money is handed out in queue order.
What makes a mortgage “first”
Australia’s land titles run on the Torrens system, with each state and territory keeping its own register. When a lender registers a mortgage, the registry records it against the title along with the time it was lodged. As NSW Land Registry Services explains, priority between registered mortgages generally follows the order of registration. The first one recorded ranks first, the next ranks second, and so on.
That order can be changed. Lenders sometimes sign a priority agreement (also called a deed of priority) to swap positions or cap how much the top-ranking loan can claim ahead of the others. Without one, registration time rules.
A caveat is different again. It’s a warning notice rather than a registered mortgage, so a caveat lender sits behind any registered mortgages already on the title. Our caveat entry covers how that works.
Why the first position costs less
A lender’s real exposure is the gap between what it’s owed and what the property would fetch in a forced sale. The first mortgagee gets paid before anyone else, so it’s the least likely to lose money. That shows up in the offer:
| First mortgage | Second mortgage | |
|---|---|---|
| Ranking on sale | Paid first | Paid after the first mortgage is cleared |
| Typical loan length | Years, often long-term | Short to medium term |
| Total cost | Usually the lowest of the property options | Higher, reflecting extra risk |
| Who offers it | Banks, non-banks, private lenders | Mostly non-bank and private lenders |
Banks are very good at first mortgage lending. If you have a clear title, solid financials and time to wait for their process, a bank first mortgage is often the cheapest money available to a business, and it deserves a serious look. If the bank said no because of credit history, a short trading record or a tight timeframe, non-bank and private lenders write first mortgage business loans too, generally with simpler paperwork and quicker settlement.
Got a property with little or no debt on it? Tell us what you’re planning and we’ll suggest where it could fit.
A worked example
A Toowoomba engineering firm owns its workshop outright and borrows $600k from a non-bank lender to fund a new production line. The lender registers a first mortgage over the workshop. Two years later the firm adds a $250k second mortgage from a private lender to cover a large contract.
Then trade dries up and the workshop is sold for $1.05m, with $45k in agent and legal costs.
| Step | Amount |
|---|---|
| Sale price | $1,050,000 |
| Less selling costs | −$45,000 |
| First mortgage paid out (balance $560k) | −$560,000 |
| Second mortgage paid out (balance $250k) | −$250,000 |
| Left for the company | $195,000 |
Now imagine the sale had brought only $780k. After costs, $735k is available: the first mortgagee still recovers its full $560k, while the second mortgagee gets the remaining $175k and is left $75k short. Ranking is what decided who carried the loss.
Things to check before you offer a first mortgage
- Existing loans on the title. A title search shows every registered mortgage and caveat.
- Your loan-to-value ratio. Lenders cap how much they’ll lend against the value; try our LVR calculator.
- Whose name the property is in. A home owned personally can still secure a company loan, usually with a personal guarantee.
- The exit cost. Find out the cost of clearing the loan ahead of schedule, and how long a discharge of mortgage takes.
Related terms
- Second mortgage: the loan that ranks next in line.
- Registered mortgage: any mortgage recorded on the title.
- Mortgagee: the lender holding the mortgage.
- Unencumbered: property with no debt registered against it.
Putting a clear title to work
A property with no loan on it, or only a small one, is one of the strongest things a business owner can bring to a lender. Curious what yours might back? The enquiry form is about a minute’s typing. No credit search runs when you submit, and your enquiry reaches one person here instead of being passed around a dozen lenders. They’ll look at the property and the business together, then phone you with options. Give us an honest picture of the property value and any existing debt and our first recommendation should hold up.
Frequently asked questions
Is a first mortgage the same as a home loan?
Not necessarily. Most home loans are first mortgages, but a first mortgage can secure any loan, including a business loan, as long as it's the top-ranking registered mortgage on that title.
Can I get a first mortgage business loan if I already have a home loan?
Only if the new lender refinances and pays out the existing loan, taking over the first position. Otherwise the new loan would sit behind it as a second mortgage or be secured by a caveat.
How is ranking between mortgages decided?
Under the Torrens system used across Australia, registered mortgages generally take priority in the order they're registered on the title. Lenders can change that order with a priority agreement, but that needs everyone affected to sign.
What happens to a first mortgage when I sell?
It's paid out at settlement from the sale proceeds and the lender lodges a discharge with the land registry. Any later mortgages and caveats are paid next, and the owner receives what's left.
Can a first mortgage be over commercial property?
Yes. Shops, offices, warehouses, factories and some rural land are all commonly used. Lenders tend to lend a lower share of value against specialised or regional property because it can take longer to sell.