All Topics / Finance / Meaning of Cross Collaterisation
Can someone please provide a simple explanation of how one can “cross collaterise” when purchasing more than 1 property.
Thanks
RodgerIt is just means using two (or more) properties as security for a loan.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Roger,
Cross colateralised or cross-secured occurs when more than One property is used as security by a lending institution/bank for a loan.
E.g., if 2 properties are used as security for 1 loan. Cheers.Regards
Steven
Mortgage BrokerMobile Mortgage Market
Ph: 0402 483 216
[email protected]
http://www.mobilemortgagemarket.com.auPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
It means the bank is tying you to them! Fair enough to use 2 properties as security for one, but when they want to tie up your whole portfolio then it’s simply making it harder for you to go elsewhere if you wish to. Then to untie each property ususlaly costs a fee, my current bank charges $150 to change securities, if you end with 5 or 6 cross collaterised then your looking at $900 to uncross them.
My advice would be, only offer the necessary security and nothing else.
Regards
PKC/C Is really the lenders looking after their own interests.
I had someone contact me recently who had all his loans with one of the banks. He did a Low Doc with them at 60% lvr and they told them he had to bring all his loans to their bank otherwise they wouldn’t give him the funds, Which he did. Now he is stuffed as they have cross coll. 10 properties, they won’t lend him any more funds and have made it virtually impossible to refinance even just 1 or 2 properties to another lender.
Cross collateralisation is also used for multiple loans. It merely requires enough security property to cover the borrowings. This could be one loan or 50 loans.
Lenders sometimes have to do this as a result of their policy especially if there is a high LVR, specialised security or less saleable security offered as security for a loan.
In high LVR cases, cross collateralisation may mean an approval when the mortgage insurers say no. It helps spread the LVR across multiple properties which would reduce the LVR and the cost of mortgage insurance if applicable.
Personally, I would avoid it wherever possible for the reasons outlined above but it is sometimes required to get the approval.
Robert Bou-Hamdan
Mortgage Adviser
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