Can I refinance out of a private loan or caveat loan?
Most people do not end up in a private loan by choice. It usually happens fast: the business needed cash flow, the ATO wanted a payment plan honoured, settlement was days away, or the bank said no and the clock was ticking. A private lender said yes in 48 hours, a caveat went on the title, and the problem was solved. Temporarily.
That word matters. Private and caveat loans are built as short-term bridging finance. They solve an urgent problem, but they are not designed to be lived in. The interest is high, the term is short, and the loan documents assume you will be gone within months. Which means from the day the loan settles, the most important question is not "how do I make the repayments" but "how do I get out".
The good news is that an exit path almost always exists. Refinancing out of private lending is something we handle regularly. Some clients go straight back to a mainstream lender. Others take a stepping-stone route through a specialist lender first, then refinance again to a sharper rate once the file has cleaned up. Either way, the private loan gets paid out at settlement, the caveat or second mortgage comes off the title, and you are back in normal lending with a repayment you can plan around.
For a broader overview of how debt consolidation through refinancing works, see our complete Australian guide.
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Why do private loans need an exit plan?
Private lending fills a genuine gap in the Australian market. When speed matters more than price, it does a job no bank can do. But the pricing reflects that job, and it is worth being clear-eyed about what staying in the facility actually costs.
The interest rate is monthly, not annual
Private and caveat loans are commonly quoted at a rate per month, often somewhere between 1 and 3 percent. On an annualised basis that can mean paying many times what a standard home loan charges. On a $300,000 facility, each month of delay can mean thousands of dollars in interest that a mainstream loan simply would not charge.
The interest often capitalises
Many private facilities are structured with no monthly repayments at all. That sounds like a relief when cash flow is tight, but it means the interest is being added to the loan balance (capitalised) or deducted from the advance upfront. Either way, the amount you owe grows while you hold the loan. The payout figure at month nine can be meaningfully larger than the amount you originally borrowed, and that growth comes straight out of your equity.
The term is short and the meter keeps running
Terms of 6 to 12 months are common. If you reach the end of the term without an exit, the typical options are an extension (usually with a rollover or extension fee, and sometimes a repricing) or default. Some facilities also step up to a higher default interest rate the moment the term expires. Rolling over once is survivable. Rolling over repeatedly is how a short-term fix quietly becomes a long-term drain.
The caveat or second mortgage limits your options
A caveat or second mortgage over your property generally needs to be dealt with before you can sell or refinance. In practice, it sits between you and every other financial move you might want to make. Getting it discharged is not just about the interest saving; it is about getting control of your own title back.
None of this is a reason to panic. It is a reason to plan. The best time to start the exit is the day the private loan settles. The second-best time is now.
What happens if my private loan term expires?
This is the question that brings most people to this page, often with a letter from the private lender in hand. Here is what the expiry of a private loan term usually looks like in practice.
Option one: the loan is repaid
This is the clean exit. A refinance settles, the private lender is paid out in full, and the caveat or mortgage is discharged from your title. If a sale of the property or another asset was always the plan, the same applies. Everything in this guide is about making this option happen before the other two take over.
Option two: the lender extends
Many private lenders will extend a facility, but extensions are rarely free. Expect a rollover or extension fee, and in some cases a higher rate for the extended period. An extension can be a sensible tactical move if your refinance is genuinely underway and just needs a few more weeks. It is a poor strategy if it is simply postponing a problem with no exit in motion.
Option three: default
If the term expires with no repayment and no agreed extension, the loan is typically in default. What follows varies by lender and by contract, but common features include a step-up to a default interest rate, recovery costs added to the balance, and eventually enforcement action. A lender holding a registered mortgage generally has the right to take possession and sell the property to recover the debt. That process takes time and most lenders would rather be refinanced out than go through it, which is why even at this late stage, a credible exit plan gives you negotiating power.
If you are already past expiry, do not go quiet on the lender. The worst position is silence. A private lender who can see a genuine refinance in progress, with a broker engaged and an application lodged, has every commercial reason to hold off enforcement and work with you. We regularly speak with private lenders on behalf of clients to buy the time a proper exit needs.
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Which lenders will refinance a private loan?
Not every lender wants to refinance a private facility, and the ones that do want to understand it. Here is how the two pathways compare.
| Mainstream lender exit | Specialist lender exit | |
|---|---|---|
| Best suited to | Clean credit, strong provable income, the issue that caused the private loan is fully resolved | Impaired credit, self-employed or complex income, ATO debt in the mix, recent bank decline |
| How the file is assessed | Largely automated credit scoring; a private loan on the file can trigger questions or decline | Manual assessment; a credit manager reads the story and the numbers together |
| View of the private loan | Often cautious; may want a full explanation and clean conduct elsewhere | Familiar territory; paying out private facilities is a common use of these products |
| Rates | Sharpest available | Higher than prime, but typically a fraction of the private loan's monthly rate |
| Speed | Varies; credit questions can slow things down | Often faster on complex files because the assessment is built for them |
| Typical role | The destination | The bridge back to the destination |
The two-step exit
For many clients the realistic path is two moves, not one. Step one: exit the private loan into a specialist lender who understands the file today, with all its bruises. Step two: once the credit file has settled, the ATO debt is cleared and the loan has 6 to 12 months of clean conduct behind it, refinance again to a mainstream lender at a sharper rate. The specialist loan is the bridge, not the destination, and we build the second step into the strategy from day one.
What lenders in both camps want to see is broadly the same: the story behind the private loan (why it was taken and what has changed since), a property valuation that supports the new lending, and evidence that the new repayments are affordable. The difference is how much flexibility they bring to each of those questions, and that is exactly the knowledge a specialist broker carries into lender selection. If your private loan followed a bank decline, our guide on what to do after your bank says no explains why the decline usually says more about the bank's credit box than about you.
What do I need to qualify for the exit?
Equity
The new loan needs to cover your existing first mortgage (if any), the full payout of the private facility including capitalised interest and fees, and the costs of the refinance itself. All of that, together, typically needs to sit within the new lender's maximum LVR. Lower is better: more equity means more lender choice, better pricing and an easier approval. Because private loan balances grow over time, we always request an up-to-date payout figure early, so the strategy is built on the real number rather than the amount you remember borrowing.
Serviceability
The new lender needs to be satisfied you can afford the repayments. If you are a PAYG employee this is straightforward. If you took the private loan for business cash flow, the assessment usually leans on your business financials, and this is where specialist lenders earn their keep: many offer alt-doc income verification (accountant's declarations, BAS or business bank statements) where full financials are not up to date. Ironically, the exit itself often helps the numbers, because replacing a high-cost private facility with a standard loan can improve your monthly position significantly.
The story
Every private loan has a reason behind it, and lenders want to hear it. A tax bill that landed at the wrong time. A business that needed stock funded before its biggest quarter. A bank decline with a settlement deadline looming. None of these are disqualifying. What matters is that the cause is identified, the situation has stabilised, and the new loan resolves it rather than papering over it. We write this up as a cover note with every application, answering the credit manager's questions before they are asked.
What to have ready
- Your private loan documents and a current payout figure
- Details of any caveat or second mortgage on the title
- Your existing home loan statements
- Income evidence (payslips, or business financials / BAS / accountant details if self-employed)
- A list of any other debts you want consolidated in the same move
- The short version of the story: why the private loan, and what has changed
Missing some of these? Start anyway. Part of our job is helping you assemble the file.
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Can I refinance a caveat or second mortgage with bad credit?
This combination is more common than you might think. The same pressure that pushed someone into a private loan (a struggling quarter, an ATO debt, a divorce settlement) often left marks on the credit file along the way. So the person trying to exit a caveat loan is frequently also carrying a default or two, some late payments, or a string of credit enquiries from the scramble that preceded the private loan.
Specialist lenders understand this pattern because they see it constantly. A credit manager reading your file alongside a clear cover note can distinguish between a borrower in ongoing freefall and a borrower who hit a rough patch, bridged it with private money, and is now stabilising. The second borrower is fundable. The marks on the file affect which lender and what rate, not whether an exit exists.
A few things help the case: clean conduct on your existing first mortgage, any defaults being paid (or paid out at settlement from the new loan), and a stable income position at the time of application. And the same recovery logic applies as with any impaired-credit lending: exit now at the rate available, let the file heal, then refinance to a sharper rate later. We keep reviews on every file so that the second move happens as soon as it can.
For the full picture on lending with credit impairment, including how different types of defaults are treated, see our guide to debt consolidation with bad credit. If tax debt is part of your situation, our ATO debt consolidation guide covers how lenders treat tax arrears and payment plans.
How long does the exit take?
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Strategy call and file review (Days 1 to 3)
We look at the private facility, your title, your credit file (with consent), your income and your equity, and map the realistic exit options. Same-day response, and by the end of this step you know whether the exit is mainstream, specialist, or two-step, and roughly what it looks like. -
Payout figure and lender match (Days 3 to 7)
We request the formal payout figure from the private lender so the numbers are exact, then match the file to the lender whose policy actually fits it. One application to the right lender, not five applications to the wrong ones. -
Application, valuation and approval (Weeks 1 to 4)
The application goes in with a full cover note telling the story behind the private loan. The lender orders a valuation of your property. Specialist approvals are manually assessed, which takes a little longer but suits complex files. -
Settlement and discharge (Weeks 3 to 6)
At settlement the new lender pays out the private facility directly, along with any other debts being consolidated. The caveat or second mortgage is discharged from your title, and you are left with one loan and one planned repayment.
Two timing notes worth knowing. First, private lenders are not always fast with payout figures and discharge paperwork, and that can add days at the end; we chase this early precisely so it does not hold up settlement. Second, if your loan term expires mid-process, a short extension is often the right tactical move, and a lender who can see the refinance progressing is usually willing to grant one. We help manage that conversation.
What does it cost?
For the full breakdown of every cost category in a consolidation refinance, including the lender risk fees unique to credit-impaired loans, see our guide to what debt consolidation costs.
We would rather be straight about costs than have you find them at settlement. Here is where they come from.
Broker fees
Loop charges broker fees on complex lending work, and exiting a private facility is complex lending work. The fee is disclosed and agreed in writing before we start, so there are no surprises. What you are paying for is strategy, lender selection, file positioning and the management of a settlement with several moving parts.
Private facility exit costs
Check your private loan documents (or let us check them) for discharge fees, early exit fees, or minimum interest periods. Some private facilities require a minimum number of months of interest even if you repay early. Occasionally that makes the timing of the exit worth planning around; usually it changes nothing, because the monthly cost of staying exceeds the cost of leaving. Either way, it belongs in the calculation, so we put it there.
New loan setup costs
The new lender will typically charge an application or settlement fee and require a valuation. Legal and government charges apply to the discharge and the new mortgage registration. If the new loan pushes above 80 percent LVR, Lenders Mortgage Insurance may also come into play, and that is a structural decision we would talk through rather than let happen by default.
The comparison that matters
Every cost above is a one-off. The private loan's interest is a meter that runs every month. When we build your strategy, we put the full exit cost next to the monthly cost of staying, in actual dollars, so the decision is made on numbers rather than nerves. As Moneysmart.gov.au recommends, always weigh the total cost of any refinance, including fees and the effect of the new loan term, not just the headline rate.
Frequently asked questions
Can I refinance a caveat loan into a normal home loan?
In most cases, yes. Once the caveat loan is paid out at settlement, the lender removes the caveat from your title and you are left with a standard first mortgage. Whether that new loan sits with a mainstream bank or a specialist lender depends on your credit file, income evidence and equity. Many homeowners exit via a specialist lender first, then refinance again to a sharper rate once the file has settled down.
What if my private loan term has already expired?
You still typically have options, but the clock matters. An expired private loan usually starts accruing default interest and the lender may begin enforcement steps. Refinancing is still possible in many cases, particularly where there is solid equity in the property. The sooner a refinance is underway, the more negotiating room you have with the private lender on extensions and payout figures.
Do I need clean credit to refinance out of a private loan?
No. Specialist lenders assess these files manually and many will accept defaults, arrears history and past bank declines, provided the story makes sense and the new loan is affordable. Clean credit opens up mainstream options and sharper rates, but impaired credit does not close the exit door.
Can I consolidate ATO debt or other debts at the same time as the exit?
Often, yes. If your equity and serviceability support it, the exit loan can pay out the private facility and consolidate other debts such as ATO arrears, credit cards or business loans in the one settlement. Solving everything in one move is usually cleaner than exiting the private loan first and coming back for the rest later.
How much equity do I need to refinance out of a private loan?
It depends on the lender and the rest of your file. As a general guide, the new total lending (existing first mortgage plus the private loan payout plus costs) typically needs to sit within the lender's maximum LVR, and lower LVRs give you more lender choice. Because private loan balances grow when interest capitalises, getting an accurate payout figure early is an important first step.
Related guides
If your private loan is tangled up with other pressures, these guides may help:
- What to do after your bank declines you: why bank declines happen and how specialist pathways differ
- ATO debt consolidation: how lenders treat tax debt and how to fold it into a refinance
- Debt consolidation with bad credit: defaults, arrears and the specialist lender pathways available
- The complete Australian debt consolidation guide: the full picture, from strategy to settlement