Quick answer
A first mortgage business loan in New Zealand is secured as the first-ranking mortgage over residential or commercial property. It either uses property with no existing loan or refinances the current mortgage to release equity. Because the lender ranks first, these loans usually cost less and run longer than second mortgages, and they suit larger amounts. Lenders check the property's value, the title, the purpose and how repayments will be met.
Key points
- Ranks first on the title, so usually cheaper than a second mortgage.
- Uses unencumbered property or refinances an existing loan.
- Suits larger amounts and longer terms.
- Non-bank first mortgages can help when books are behind.
- Security
- First-ranking mortgage over property
- Typical amount
- $20,000 to $5,000,000
- Property types
- Residential, commercial, some rural
- Main checks
- Valuation, title, servicing, exit
When the amount is large or the term needs to be long, a first mortgage is often the most efficient way to fund a business. The lender sits at the front of the queue on the title, which lowers its risk and usually your cost. Some owners use property they own outright; others refinance an existing home or commercial loan to release equity for the business.
Two ways in
Unencumbered property. If you own a home, a rental or a commercial building with no loan on it, a lender can take a first mortgage directly. This is often the simplest property-backed loan to arrange.
Refinance. If there’s already a mortgage, the new lender repays it and becomes the first mortgagee, lending extra on top for the business. This can be cheaper than a second mortgage over the long run, but involves more legal work and coordination with the existing lender.
Bank and non-bank first mortgages
| Bank | Non-bank lender | |
|---|---|---|
| Paperwork | Full financials and tax returns | Often low doc or alternative evidence |
| Credit history | Clean file preferred | Past issues considered |
| Cost | Lower | Higher |
| Term | Long, often 20 to 30 years | Often shorter, sometimes 1 to 5 years |
A non-bank first mortgage can be a stepping stone: borrow now while the books are being caught up, then refinance to a bank once returns are filed and trading is documented. Our guide to using property when your books are behind covers how to plan that.
What the lender checks
- Valuation. A registered valuer’s report on the property.
- Title. Ownership and any other interests, searched through LINZ.
- Servicing. How the business or owners will meet the repayments.
- Purpose. What the funds are for.
- Exit or long-term plan. Especially for non-bank loans with shorter terms.
Bank lending against residential property is also shaped by the Reserve Bank’s loan-to-value restrictions, which can limit how much of a property’s value can be borrowed.
Using commercial property
If your business owns its premises, a first mortgage over the building is a common way to fund expansion or consolidate debts. Lenders look at the building’s value, its condition, any tenants and the leases. Specialised buildings can be harder to value and may attract a lower share of their value.
An illustrative example
A Palmerston North engineering business owns its workshop outright, valued at about $1.4 million. It wants $600,000 to buy a second CNC machine, take on two apprentices and repay some expensive short-term loans. Its returns are up to date and profits are steady. A lender takes a first mortgage over the workshop on a fifteen-year term, with repayments the business can meet comfortably from current trading. Illustrative only.
Risks to weigh
The property is at risk if repayments aren’t met. Using a family home for business borrowing is a serious decision, and every owner on the title should understand it and get independent legal advice. Think about what happens if trading drops: could the repayments still be met for a few lean months?
Costs to ask about
Expect valuation and legal fees, possibly an establishment fee, and break fees if you’re leaving a fixed-rate loan early. Ask the new lender for every cost in writing, and ask your existing lender for a payout figure, so you can compare properly.
Preparing for a smooth refinance
Refinances stall most often on small things: an owner who’s overseas and can’t sign, a missing loan statement, or a property with an unusual title such as a cross-lease or unit title with body corporate issues. Gather recent statements for every loan on the property, confirm that everyone on the title is available to sign, and tell the lender about anything unusual on the title at the start. If a fixed-rate period is ending soon, timing the refinance around it can avoid break fees altogether.
Combining business and personal debt
Some owners use a first mortgage refinance to roll several expensive short-term business debts into one lower-cost loan. That can ease cash flow considerably, but stretching short debts over a long term can mean paying more in total. Compare the total cost both ways, and consider paying extra when trading is strong so the business debt doesn’t linger on the home for decades.
Tell us about the property and the plan
Tell us about the property, any loan on it, what the business needs and what your books look like right now. Asking won’t mark your file, your enquiry isn’t passed down a list, and one real person reads it and calls you back to work through whether a first or second mortgage fits better. Start your enquiry.
Frequently asked questions
Can I get a first mortgage if my property is already mortgaged?
Yes, by refinancing. The new lender repays the existing loan and takes over as first mortgagee, often releasing extra equity at the same time.
Do non-bank lenders offer first mortgages?
Yes. Non-bank lenders often consider owners whose returns are behind or whose credit has marks, usually at a higher cost than a bank and sometimes over a shorter term.
Can I use rural land?
Some lenders accept rural and lifestyle property, but usually at a lower share of its value. Tell us about the land and how it's used.
How long does a refinance take?
It depends on valuations, legal work and how quickly the existing lender provides a discharge. Have recent loan statements ready to help it along.