With the property market evolving rapidly, Australians are exploring alternative ways to secure home finance. One option seeing renewed attention in 2025 is the junior mortgage. While these loans have been around for decades, recent shifts in regulation, lending appetite, and housing affordability are bringing them back into the spotlight. But what exactly is a junior mortgage, and is it right for you?
Understanding Junior Mortgages
A junior mortgage is a second or subsequent home loan secured against a property that already has a primary mortgage (known as a senior or first mortgage). Unlike the main home loan, a junior mortgage sits lower in repayment priority. If the borrower defaults and the property is sold, the senior lender is paid out first, and any remaining funds go to the junior lender.
- Purpose: Often used for renovations, debt consolidation, or as a deposit on another property.
- Amount: Typically smaller than the primary mortgage—usually up to 20–30% of the property’s value.
- Interest rates: Generally higher than first mortgages due to the added risk for the lender.
For example, if you have a $600,000 home with a $400,000 mortgage, you might take out a $50,000 junior mortgage for renovations. If you default, the bank holding the $400,000 mortgage is repaid first, and the junior lender claims what’s left—if anything remains.
Why Junior Mortgages Are Back on the Radar in 2025
Several trends are driving renewed interest in junior mortgages:
- Rising property values: Homeowners have built up more equity, making it easier to borrow against their homes.
- Stricter lending criteria: APRA’s tightened serviceability assessments in 2024 mean some borrowers can’t increase their existing loans, so they turn to junior mortgages as a workaround.
- Increased renovation activity: Government incentives, such as the 2025 Home Improvement Rebate, are motivating homeowners to unlock equity for upgrades.
- Small business funding: Entrepreneurs are using junior mortgages to access capital without refinancing their entire home loan.
According to the Australian Bureau of Statistics, the volume of second mortgages written in 2024–25 has risen by 18% compared to the previous year. Lenders are also launching more flexible junior mortgage products to capture this demand.
Risks and Considerations for Borrowers
While junior mortgages can offer flexibility, they come with important caveats. Borrowers should be aware of:
- Higher interest rates and fees: These loans often carry a premium of 1–3% above standard home loan rates. Setup and ongoing fees may also apply.
- Increased risk of negative equity: With two loans secured against one asset, falling property prices can quickly erode your buffer and put both loans at risk.
- Complex repayment structures: Managing repayments on two mortgages requires careful cash flow planning. Missed payments can trigger default on both loans.
- Refinancing limitations: Having a junior mortgage can complicate future refinancing or property sales, as both lenders must agree to release the property.
For instance, during the 2022–23 downturn, some borrowers with junior mortgages found themselves “underwater”—owing more than their home’s market value—making it difficult to refinance or sell without a loss.
2025 Policy and Lender Updates
Recent regulatory changes are reshaping the landscape for junior mortgages:
- APRA regulations: Lenders must now perform enhanced serviceability checks on all secondary mortgages, using a minimum interest rate buffer of 3%.
- Credit reporting: Comprehensive credit reporting rules mean all mortgage liabilities, including juniors, are visible to other lenders and affect your borrowing power.
- Product innovation: Some non-bank lenders in 2025 are offering split junior mortgages with fixed and variable portions, as well as features like redraw and offset accounts.
Major banks remain cautious, but smaller lenders and fintechs are stepping in to offer more flexible second mortgage solutions. As always, comparing rates, fees, and conditions is critical.
Is a Junior Mortgage Right for You?
Junior mortgages can be a useful tool for homeowners who need extra funds without disturbing their main home loan. However, the risks—especially in a changing property market—mean they’re best suited to borrowers with stable finances and a clear repayment plan.
Before committing, consider alternative options such as a personal loan, line of credit, or negotiating a top-up with your primary lender. Always weigh the total cost and long-term implications.
