I have done a search on the forum in an attempt to get some information re this subject. Cross collateralise properties seems to be something that experienced investors don’t do.
Could someone point out to me why this is.
If you were to have a handful of properties each at 55% LVR, why would you not x collateralise so as to provide the deposits for additional properties? This would not increase your payments on existing properties, thereby keeping them positive. To refinance or draw-down may take them from +ve to -ve.
There is obviously a very good answer to all this, just I haven’t got that far in my understanding of finance yet.
Working on it!!
Essykay
Hi Essykay
I would advise client not to cross-collateralise for the following reasons:
1. It may increase your costs if you wish to drawdown on your equity (e.g. some bank charge extra admin fees if they have to deal with multiple securities).
2. If something goes wrong with one of your properties then they can sell all of your properties to recover their debt. If you only secure one loan with one property then they may not be able to do this. However, some banks have a clause in their loan contracts which essentially allows them to act on all mortgages held by the bank so be careful and read your loan documents.
3. If you cross-collateralised then you are tied to one bank for all your loans.Generally, cross-collateralising decreases your flexibility.
I hope this helps.
Cheers
Stu
Property & Finance News
at http://www.prosolution.com.auEssykay
If you are wrapping the properties you may find that it is illegal to x collaterialise them depending on State leglistaion. In Qld it is a breach of the Property Act to redraw or use 1 security as security for another loan.
Same old story to be on the safe side check with your Solicitor.
The topic ‘Cross Collateralise ???’ is closed to new replies.
