All Topics / Finance / Is a LOC cross collateralising?

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  • Profile photo of markh3084markh3084
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    @markh3084
    Join Date: 2010
    Post Count: 43

    You would think this is a simple question, but if I speak to three people I get three opinions.

    If I seek a line of credit using the equity in my home, and use this to finance purchasing an investment property, have I just cross collateralised my loans?

    Very interested in feedback. If you do comment, can I ask you to add your qualifications/experience to the answer.  Thanks

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Mark

    if the sole security of the property is the PPOR itself then the simple answer is No.

    Must admit i am unsure how you could get 3 different answers when there is only Yes or No lol.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of markh3084markh3084
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    @markh3084
    Join Date: 2010
    Post Count: 43

    Maybe its only the two answers….. thanks

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    Cross collateralising is when you use 2 security properties for 1 loan.

    eg. PPOR and IP used to secure the 100% borrowings on the IP.

    The better way to proceed is to set up a second loan in the PPOR and then use this cash to fund the deposit on the IP.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of CatalystCatalyst
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    @catalyst
    Join Date: 2008
    Post Count: 1,404

    The reason you are getting different answers is because your question is not specific, so it depends how people are interpreting it.

    If you get approval for a LOC that is bigger than your PPOR worth or the IP worth then the bank will cross them. If you get a LOC from your PPOR and then buy the IP with that LOC then you will own the IP outright and the LOC will be against your home.
    If you use the LOC as the deposit then borrow, say 80% stand alone then they won't be crossed (or the bank may try to cross them.

    As you see, many variables. You don't say how you are getting the LOC or how you are using it. 
    Hope that makes sense.

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hi Mark

    It won't be crossed if:

    1. The LOC is used for the deposit/costs
    2. The remaining portion is set up as a seperate loan (same lender or elsewhere)

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

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