Short-term first mortgage – Everything you need to know

You might have heard talk about short-term first mortgages and be wondering what they are and how they differ from a regular first mortgage. It can sometimes be confusing getting across all the various loan types offered from a range of financial institutions. That’s why in this article, we’ll take a closer look at the short-term first mortgage options available to help bring you up to speed with what’s available.

A short-term first mortgage explained

In the case of mortgages, or loans secured against a property, the word ‘first’ refers to its priority. This means that the lender who provides the loan to purchase the property gets priority when it comes to borrowed funds being repaid. In other words, the first mortgage lender has the primary claim to be repaid if the property is sold or the loan defaults (this is sometimes also known as ‘first registered interest’). To learn more about How to get a mortgage with a default, visit on hyperlinked site.

Historically, first mortgages have been provided by the ‘Big 4’ banks for a loan term of anywhere from 15 to 30 years. In contrast, a ‘short-term’ loan, as the name suggests, refers to a shorter-form loan. The definition of short-term can vary, though typically, most short-term loan durations are between two to 24 months.

So, now that we have a greater understanding of what a short-term first mortgage is, let’s take a look at some reasons why you may consider this type of finance.

The benefits of a secured short-term first mortgage

Short-term business loans are either ‘secured’ or ‘unsecured.’ A ‘secured’ loan uses property as a requirement to secure the finance. Conversely, an ‘unsecured’ loan does not require an asset to obtain finance. The interest rate charged will depend on the short-term business loan’s security. As expected, an ‘unsecured’ loan poses a greater risk to the lender and is usually charged at higher interest rates.  Check the Current mortgage rates before taking any decision. As sich, ‘secured’ short-term business loans are deemed as lower risk and, therefore usually more competitive. Another benefit of a secured short-term first mortgage is that this facility usually has lower interest rates than other loan types (such as caveat loans or second mortgages). In addition, you can usually borrow a higher ‘loan to value ratio’ (LVR) with a short-term first mortgage, which in real terms means being able to borrow more, pending your serviceability (ability to repay the loan).

When might you consider a short-term first mortgage?

A short-term first mortgage loan can be used for personal or business use, and can be an extremely useful source of alternative finance in a variety of situations.

One of the most common uses of a short-term first mortgage is to fund renovations and home improvements – which is becoming an increasingly popular pre-sale strategy. Another common use for a short-term mortgage is to manage an urgent, sizable, and often unexpected bill (for instance tax or a medical bill).

Alternatively, a short-term business loan can be used to get a business up and running. For instance, if a builder wants to start his or her own business, they’ll need to hire or purchase tools, supplies, vehicles and potentially support staff before commencing operations. The short-term business loan provides some ‘breathing space’ for jobs to be completed, cash flow to come, expenses to be paid, and profit to be made.

Similarly, for existing businesses, a short-term business loan can be a useful way to expand a business, including buying out an existing partner or equally renting, buying or refinancing into a different commercial property. Other common uses include purchasing new stock or equipment, paying wages, paying outstanding bills, or upgrading IT systems.

A short-term business loan is also often used to help smooth out the general ‘ups and downs’ of business cash flow to include offsetting seasonal trends and managing invoice lags (slow-paying customers). In particular, invoice lags can be extremely stressful for many businesses as the flow-on effect of having limited cash flow can cause significant strain – especially when wages need to be paid and/ or tax bills are due.

A short-term business loan equally appeals to investors seeking funds to invest in an existing business, either as a ‘hands-on’ or a silent partner.

The wrap

If you own property, a short-term first mortgage is increasingly being considered as a way to obtain funds relatively quickly for personal or business use. You can apply online for a short-term first mortgage through a variety of financial institutions in Australia – particularly through private lenders and fintechs. This form of funding can be used for a short period of time for a variety of purposes.

Are you asset rich but cash poor? Read more from Mango Credit about how a short-term business loan can help.