Hi Guys,
Just wanted to know what the general option on this is when it comes to borrowing.
Say you have 10 properties, would you prefer to secure all your properties against the one loan (e.g. LOC) or have each loan secured against each respective property (e.g. separate IO loans)
Having all properties secured against a single loan may well mean less application and ongoing monthly fees however some may argue that the benefit of the latter is that if your default on one loan, only the secured property will be affected. However, lets just say the bank does not get back the loan balance after selling the property, they’ll have the power to make you sell your other assets that aren’t secured against the loan anyway.
I’m very interested in what people’s beliefs are on this.
Kenzel
The answer is simple.
Where you can do not cross collateralise the loans.
There are always exceptions to this but certainly when starting out try and avoid such a strategy if you can.
There are many more downsides to merely the one you have pointed out.
Richard Taylor | Australia's leading private lender
One of my friends has gotten himself into a bit of trouble by cross collateralising. He had 2 properties crossed. he then got into a bit of financial trouble and tried desparately to sell one property, but the market had dropped and he had to reduce the price. He eventually sold it, but then the bank wanted to do another valuation on the existing property as their overall security was changing. This property had dropped too and the bank wanted another $40,000 before they would release the sold property.
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
9 out of 10 times best to avoid CC but if it is the only way to get a loan or refinance then an option worth considering.
One up side is less documentation at tax time. Also can be considerable easier to keep track of one loan and interest payments etc. But there are also downsides as previously mentioned. You can always change the CC later to individual loans and this may be costly depending on bank and state charges.One advantage – maybe the only one – is that if you have one loan on two properties then you may avoid deferred establishment fees on the sale of one property.
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
I have a $54,000 investment property loan secured to my PPOR. When i applied for a LOC against my PPOR which currently has around $200,000 available equity. They removed the portion that is already used as security. This lowered my available LOC by $54,000. This is something that was not explained to me at the time but know i know.
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