Forums / Getting Technical / Finance / cross collateralising loans

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  • Profile photo of citrusteacitrustea
    Join Date: 2008
    Post Count: 8

    We are about to use equity out of our PPOR as a deposit to purchase an investment property. We have approached our current non-bank lender, and now a broker. Both have wanted us to use our current house as collateral against the investment property.
    Everything I have been taught about investing says not to do this, why is there so much resistance on the part of lenders to give us separate loans?
    Should we just go with the cross collateralise loan option? The broker has said that as an alternative we can take out an investment loan against our PPOR for the value of the deposit, then a second loan for the remainder of the cost of the investment property.

    Profile photo of Corey BattCorey Batt
    Join Date: 2012
    Post Count: 1,010

    Your intuition was right – the bank and broker are definitely being lazy at the expense of your structure/strategy/protection.

    Best thing to do is set these up separately, with an equity release on the PPOR solely to cover the deposit costs and government charges and then a second application for a loan for the remaining purchase amount attached solely to the new purchase. The only reason why either party would suggest against this is because they can’t be bothered completing two sets of forms.

    Depending how much equity is available, it could be a good time to even setup further equity funds from the PPOR if available, so that way the funds are sitting ready and waiting if/when you want to make any further purchases – I generally do this for clients so they can hit the ground running with any further purchases. I’ve written about structuring property purchase deposits before on our blog.

    Hope this explains it – if you need any help let me know.

    Corey Batt | Precision Funding
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of citrusteacitrustea
    Join Date: 2008
    Post Count: 8

    Thanks Corey,
    That is what we thought. We will go back and insist on the two loans.

    Profile photo of Richard TaylorRichard Taylor
    Join Date: 2003
    Post Count: 12,010

    Hi Citrus

    As Corey says.
    If you get resistance from either the Broker or lender it will be a combination of lack of knowledge / experience or pure laziness.

    Alternative is to try another broker / banker.


    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of Jamie MooreJamie Moore
    Join Date: 2010
    Post Count: 5,069

    Should we just go with the cross collateralise loan option?


    Best to keep the loans uncrossed.

    It’s easy to do. Assuming you have one PPOR and are looking to purchase one IP. The structure is pretty much:

    Loan 1: Current mortgage
    Loan 2: Equity release to cover 20% deposit and stamp duty on IP

    Loan 3: Investment loan to cover remaining 80% against IP (deposit comes from loan 2 above)



    Jamie Moore | Pass Go Home Loans Pty Ltd
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

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