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A caveat is a notice on title that someone claims an interest in the land. While it sits there, the land registry will not register most new dealings, including a new mortgage, without the caveator’s consent. So a refinance is always possible in principle, and always conditional on the caveat being dealt with.
How it works at settlement
The incoming lender’s solicitor asks the caveat lender for a payout figure to a set date. At settlement, which is now electronic in every mainland state, three things happen together: the caveat lender is paid out, a withdrawal of caveat is lodged, and the new mortgage is registered. The borrower does not have to find the money to clear the caveat first. The new loan clears it.
If there is also a bank first mortgage and the refinance replaces both, the bank’s discharge is lodged in the same settlement.
Refinancing out of a caveat loan
Most caveat loans are repaid by refinance, so this is the normal path, not an exception. The realistic options are:
- A bank or non-bank term loan. The cheapest exit, and the slowest. Banks will ask what the caveat loan was for. A one-off event with a clear explanation, such as a settlement bridge or a tax debt now paid, is acceptable. A pattern of short-term loans is not.
- A registered second mortgage. Where the first mortgage is on good terms and only the caveat loan needs replacing, a second mortgage prices well below a caveat and runs for up to two years.
- A private first mortgage. Where the bank is not an option for now, one private facility can replace both the bank loan and the caveat loan while the position is rebuilt.
What incoming lenders check
The payout figure and whether default interest is running, the reason the caveat loan was taken, whether the ATO or another creditor has been cleared, and the combined LVR after the refinance. If the caveat loan is already in default, the payout will be higher than the borrower expects, and that can push the LVR past what the new lender accepts.
Timing is everything
Start the refinance when the caveat loan settles, not when it is about to expire. If the term is going to run out first, ask about an extension early - see can a caveat loan be extended. Refinancing from a position of time is cheap. Refinancing from default is not.
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Get matched with a funderFAQ
Will a bank refinance a property with a caveat on it?
Yes, provided the caveat is removed at settlement. Banks deal with this routinely. What they look at harder is why the caveat loan was needed and whether the underlying issue, such as a tax debt, is now resolved.
Can I refinance a caveat loan with another private lender?
Yes. A longer second mortgage or a first mortgage from a private lender is a common way out where a bank is not yet an option. The new lender pays out the caveat lender at settlement.
How long before the term ends should I start the refinance?
As early as possible, and at least six to eight weeks for a bank. A refinance that starts in the last fortnight of a caveat loan usually ends in an extension fee or default interest.