Hello Everyone,
As I am starting to look for my first investment property, I realize how little I really know and how much there is to learn out there.
I want to start this topic to discuss the potential downsides of cross collateralising when it comes to obtaining bank loans. I think one of the difficulties is the additional costs to valuate all the properties that are a part of the one loan.
I am hoping to shed some light on why one should not structure a loan with the properties cross collateralize.
Thank you,
TongAs I understand it the issue is that if you run into difficulties with the new investment then the property that you have the loan secured over is then subject to being sold by the bank to get it's money back. So I guess the real danger would be if you used you own PPOR to cross collatorise, if you defaulted on the investment or development then your own home could be at risk.
At least that's how I understand it but I'm only a baby so happy to be corrected
thommo
Yes there are problems if the loan defaults both properties are in the mix also if you want to sell the original property you might have difficulty refinancing the 2nd property to stand alone or be up for LMI if the equity of the first property was used as a deposit.
Could there be another issue during refinancing? Not sure, but could there be two appraisals that need to be done if I had two properties (PPOR and IP) tied to one loan.
Thanks,
Tongkeep in mind the all monies clause! only if your crossing it with the same bank & separate loans. i only learned about this the other day.
coretex – what's the 'all monies clause' mate?
well i got told by a broker if you have say 2 securities with the same bank they are deemed to be separate loans and different securities can be secured against these properties at a later stage or “refinancing”. This doesn’t technically cross cat the loans but if you default on your loans or repayments and somehow the banks wanted there money they could take both 2 securities to the cleaners.
I also got told its best to setup your loans with different banks spread the mustard around may be a little more time consuming and maybe at some stage banks might not lend as much but iv been told its safer.
It was a little to late for myself to take my latest property purchase to another bank i found this out a little late, but if it helps you good luck.
Hope i explained this ok i’m only learning my self and ain’t no broker or bank manager so my word isn’t the gospel.
cheers
Billthanks Bill, I'll keep my eye out for that. To be honest I've always felt more comfortable with my cash with one bank and loans with another
thommo
Unless there is no other way to get on the property ladder don't cross your loans.
If you need to use the equity in your PPOR for the deposit do that.
Use the equity (LOC) to pay for the deposit, stamp duty, solicitor etc then get a separate 80% loan for the investment property. This will be a stand alone loan for the IP.As long as you keep the line of credit (that you set up to pay for the stamp duty etc) for investment only this is also tax deductible.
People worry about crossing in case they go broke but this seldom happens. What OFTEN happens though is people want to upgrade their home and that's when it gets tricky trying to uncross them so you can sell the PPOR to buy a new one.
Don't get confused with having different loans with the same bank. This is NOT cross coll. Read the contract. It lists which properties are used as collateral.
Thanks Catalyst. I’m very happy to have posted at this forum before we proceed with signing any documents. I’m currently pressing my broker to process this loans as you and others suggested.
It’s amazing what I’m able to learn in one week. From levels 1 to 10 (1 = beginning/novice, 10 = expert), I think I’m at a 4 in the this area of cross coll.
Thanks again everyone.
Tongcoretex wrote:keep in mind the all monies clause! only if your crossing it with the same bank & separate loans. i only learned about this the other day.Is this a scare tactic? They don’t exist in mortgages anymore and were abolished 15 years ago.
probaly was but thanks for that link
Where is Richard? He should make a comment on the downside of X-collaterising the loans
Richard did give me some good feedback. I’m really getting into the hang of things on this website.
Hi GOM (sorry mate missed that one was processing forum clients deals)
Yes emailed Tong the 10 reasons off my website.
Sure his mortgage broker will do him justice.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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