When I bought my 2nd Property, the bank manager said they had to keep the 1st one as security.
Did I have a choice here??? By all the advice saying do not X collateralise, I wonder, does it just mean not use equity from the 1st one to fund the deposit? Can someone clear it up?Fidel
Some banks have a policy to cross colateralise however even some of these can be negotiated with, say by your Mortgage Broker. If you have no deposit to fund the difference between the loan and the property value and the expences such as stamp duties etc your choice will be limited, however not unachievable a quick assessment by a mortgage adviser could tell you your options. Lenders tend to cross your properties to make it difficult for you to leave, in other words try to tie you in.
It is better to keep your properties uncrossed, otherwise it can become difficult down the track if you want to bring another lender into the equasion; eg when your current lender has reached the max they will provide you. Another instance could be that you do not service with the lender you have for your next property, but your broker can find you a lender you do service with, If the properites are crossed and say you need to take them over the 80% LVR you will have to pay LMI (Mortgage Insurance) over all properties that are tangled up in the cross colat process.
Structuring the loan correctly in the first place can save thousands in the long term, I spend a lot of time with first home buyers to ensure they get off on the right track for this reason.
Hello Fidel
What X collateralization means is that you have more than 1 property as security for a mortgage. Banks love that because it usually means that they have way too much security for the loan.
The prefered method is to take out a stand alone loan on property A (or to increase the mortgage on property A if it has one) and then use the money to help finance property B, which will also have a mortgage. This way each mortgage is only covered by one property which gives you more flexibility in the future.
Hope this helps
ElkaYes, it makes a bit of sense now that when I recently refinanced my IP's to an overseas bank the Aussie bank's Lawyers needed to do Valuations and searches on The Security property, which probably cost me more……. Touche
Thanks for the help.Fidel
If you can't make the mortgage payments on the other property you lose all x collaterialised properties.
Also this can be the case if all properties are with the same lender.Duckster,
That ain't necessarily so. A bank can take both, either or neither of your properties if cross collateralised. The point is, you have given them security so they decide. If you keep your loans separate, then you can decide which one you need to sell.
And also bear in mind if a bank gets a court judgment against you, they can then easily apply for a court order to sell any of your assets even other property that they don't have a mortgage over.
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
We've got ourselves cross collaterised badly with our PPOR and 3IPs. We didn't have enough to fund deposits so didn't see any other way to be able to purchase. Elkam, I didn't know we could have increased the loan on our PPOR and used that money as a deposit for the first IP. Is that a common way of avoiding cross collaterising?
Anyway…I thought that, as your property's value went up, you could get a revaluation and get the lender to reduce or remove the security it's got.
Anyone able to enlighten me?
thanks,
Carlin
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