Is a LOC cross collateralising?

Viewing 6 posts - 1 through 6 (of 6 total)

markh3084
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@markh3084
Join Date: 2010
Post Count: 43
February 27, 2012 - 6:10 am
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
Richard Taylor
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@qlds007
Join Date: 2003
Post Count: 12,024
February 27, 2012 - 7:14 am
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
markh3084
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@markh3084
Join Date: 2010
Post Count: 43
February 27, 2012 - 7:33 am
Maybe its only the two answers….. thanks
Terryw
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@terryw
Join Date: 2001
Post Count: 16,213
February 27, 2012 - 9:32 am
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
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Catalyst
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@catalyst
Join Date: 2008
Post Count: 1,404
February 27, 2012 - 11:52 am
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.
Jamie Moore
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@jamie-m
Join Date: 2010
Post Count: 5,069
February 27, 2012 - 12:16 pm
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
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