Hi everyone,
Posting from a lender’s perspective and keen to hear broader industry views.
We often see borrowers with strong property equity who fall into arrears due to temporary cash-flow shocks (construction overruns, income disruption, unexpected expenses). In these situations, a short-term second mortgage or caveat loan is sometimes used to:
- Clear arrears quickly
- Stabilise accounts and avoid default
- Create a clean 3–6 month history before refinancing back to a bank
From your experience:
- When is this strategy genuinely effective?
- What red flags suggest it may do more harm than good?
- How important is a clearly defined exit (sale vs refinance)?
- What minimum stability period do banks typically want to see post-arrears?
We see these facilities as bridging tools only, not long-term solutions, but interested in hearing real-world insights from brokers, lenders, and borrowers.
Knotegroup | Knote Group
https://www.knote.com.au/From what I’ve seen, short-term second mortgages or caveat loans can work if the arrears are genuinely due to a temporary cash-flow issue and there’s a clear, realistic exit. They’re useful as a bridge to stop defaults and clean up repayment history, but they can backfire if they’re covering ongoing affordability problems or if fees stack up.
The exit plan really seems to be the key difference between a good outcome and a bad one.
Out of interest, what’s the minimum clean repayment period banks are actually accepting post-arrears in real cases?
jon-smith | KPG Taxation
https://www.kpgtaxation.com.au/
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