cross-securitsing

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daniel18789
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@daniel18789
Join Date: 2003
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February 5, 2004 - 8:30 am
Hello all,
Can someone please explain to me how cross securitising works including pros and cons. Thankyou.
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wealth4life.com
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@wealth4life.com
Join Date: 2003
Post Count: 1,248
February 5, 2004 - 11:29 am
Securitisation is the process of converting cash into securities, cross securitisation is technical can you tell me more information, ie: give me more clarity to you question. Phil
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Still in School
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@still-in-school
Join Date: 2003
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February 5, 2004 - 12:08 pm
Hi damiel18789,
Cross-securitising, has the same name as cross collateral, what that means is, your tying up collateral (equity) from one property and from another to be able to purchase or borrow against, in being successfully able to purchase another property.
Cheers,
sis
People 4get that by saving just $3 a day & investing it sensibly
over a working life, you’ll end up with around $1 million
Terryw
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February 5, 2004 - 1:03 pm
Sis is correct. it is basically using two (or more) properties as security for a loan.
eg. You have a house worth $200,000 with a $100,000 loan. You buy an investment property worth $200,000 borrowing $220,000 in total. For the IP both the IP itself and the home are used as security. This is an advantage as you can borrow 100% or more for the property and don’t need a deposit.
The disadvantage is if you want to buy many properties or want to sell one it creates difficulties. eg in the above example, if you want to sell your home, you would have to pay down the loan on the IP so that it was 80% below purchase price, or get the IP revalued and mke sure it is under 80% LVR (due to growth).
Another disadvantage is that both loans have to be with the same bank.
A more flexible way would be to set up another loan (ie a LOC or a redraw) on the original home and take a deposit from that account to use for teh IP and getting a 80% LVR loan with that or another bank. You owuld still be able to borrow 110% for the IP, but would have the flexibilty of using whatever lender happened to be more suitable at that time.
Terryw
Discover Home Loans
North Sydney
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Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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freedomfinder
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Join Date: 2004
Post Count: 63
February 6, 2004 - 12:58 pm
that is the best to do it terryw, It can help you duplicate quickly, and the bastar** sorry banks cannot really lower your equity position. What i mean is if you cross colateralise say more than one property how do you know the bank wont write a lower valuation, where as if you put up your own say 20% to avoid mortgage insurance and negotiate the best loan for the 80% then you know if banks are undervaluing if they ask you to pay LMI. In my opinion keeping all your properties with seperate securities and differnt lenders is definatly the way to go.
the freedomfinder
Terryw
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Post Count: 16,213
February 7, 2004 - 12:19 pm
I forgot one important point. If your properties are crss securitised and the shit hits the fan, things go wrong and you can’t pay, the lender can just sell up your properties.
If you are not cross securitised, they will still be comming after you for the money, taking the first secuirty property first, but if ths wasn’t enough, you would have a choice on how you would come up with the rest of the money.
Terryw
Discover Home Loans
North Sydney
[email protected]
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