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The first thing to know about caveat loan pricing is the unit. A rate of 1.65% is per month. Over a three-month term that is roughly 5% of the loan in interest, plus fees. Borrowers who compare it to an annual bank rate are comparing the wrong things: a caveat loan is a short bridge, and the question is what it costs to solve the problem, not what it would cost to hold for a year.
The indicative range
On the rates and fees page, caveat loans are shown from 1.65% a month, up to around 65% combined LVR, over one to six months, with an establishment fee around 2.5%. Those figures are representative and subject to assessment. A registered second mortgage prices lower, from around 0.975% a month, because the security is stronger - which is why a slightly longer timeframe can be worth the wait.
What moves the rate
- Combined LVR. The total of the existing mortgage plus the new loan against the property value. Under 50% prices best. Approaching 65% prices highest.
- The security. Metropolitan commercial, industrial and residential investment property prices best. Regional, rural, specialised or vacant land prices higher, at lower LVRs.
- Position on title. A caveat behind one bank mortgage is standard. Behind two existing securities is possible but dearer.
- The exit. A signed sale contract or an approved refinance is a strong exit. An intention to refinance later is a weak one, and it is priced accordingly.
- Size and term. Very small loans carry proportionally higher cost because the legal and lodgement work is the same.
What does not move the rate much: income, tax returns and credit score. The loan is assessed on the asset and the exit.
Working out the real cost
Add three things: interest for the full term, the establishment fee, and legal and valuation costs. On $300,000 for three months at 1.65% a month with a 2.5% fee, that is about $14,850 in interest and $7,500 in fees before legals. Then compare that with the cost of not solving the problem - a lost deposit, ATO general interest charge running at 11.43% a year and not deductible, or a settlement that fails.
The number that hurts
It is rarely the headline rate. It is the default rate if the loan runs past its term. Set a term that matches a realistic exit, with margin, and the headline rate is the rate you pay. See default interest rates.
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Get matched with a funderFAQ
Why are caveat loan rates higher than bank rates?
The lender ranks behind any existing mortgage, holds a lighter form of security than a registered mortgage, and is funding in days on limited documents. The rate prices that risk and speed over a term measured in months, not years.
Is caveat loan interest paid monthly?
Usually not. Interest is commonly prepaid out of the advance or capitalised and paid at the end, so there are no monthly repayments during the term.
Is the interest tax deductible?
Interest on borrowing used for a business purpose is generally deductible, but that depends on your structure and use of funds. Confirm it with your accountant.