I have a line of credit loan which has 3 houses set up in sub accounts, but what worries me is having all my loans with the one bank and my place of residence in the security mix. Thinking long term ie.for my next purchases I was thinking of only taking the 20%deposit from the LOC and setting up the 80% as stand alone with another financial institution.Any ideas[8D]
Question is it wise to continually add property to the one LOC with your home in the security mix ?
MJKMJK
I am fairly new at this, but what I have gathered from the pro’s by visiting forums, is that is not advisable to cross collateralise if you can help it. I was advised to use my LOC for my PPOR for deposit only (+costs) and then take a separate stand alone mortgage. However, I don’t see that it has to be with another institution. Why complicate things, unless you can get a better deal elsewhere. Just a separate loan. I will split my LOC into a personal portion and an investment portion for tax purposes. I hope I have understood this correctly.
Anyone else with more experience?
Ally
Ally,
Thanks for your reply. You have got my meaning.I suppose I could look at using the same institution. I did wonder if anyone else had a veiw on cross collateralisation ( if thats a word !)
MJK[^]
It’s best to avoid cross collateralising as it should make it easier to sell or refinance as you’ll only have one property as security per loan. The only problem is that you can end up with lots of loans, but each property is effectively ‘stand-alone’.
Hi all
I agree with RC. Avoid cross collateralisation, have stand alone loans (which may be secured by more than one property; depending on your strategy) and then you have flexiblity.
cheerio
the B [
]Thanks Bruce I,
Whats your thinking on doing all this with the same institution or do you favour your deposits from one inst’n and stand alones with another?
MJK
Mmmmm
good question. I haven’t really given it much thought, as we straight away approached it from the angle of placing as much as possible of our business with the one lender. It seemed to make sense from the stance of loyalty and volume of business.
This has some benefits as they see you are serious, and as the amount they have loaned you rises, it really does get easier to deal with them and eventually you have options put to you that aren’t given to a person off the street.
Recently we have been offered a reduced interest rate that is even lower than the best investment rate of the lender. There have also been discussions about reduced application fees, etc, etc.
I almost didn’t believe it till it happened to us, but it really does happen after you have established a solid business relationship. [
]Other option of splitting it up has the upside of establishing multiple relationships. We actually did do this, but only placed our day to day banking with a second lender. Still it has been significant enough to open some doors for the future when we will go to them. A bit of background here is that we have been open about the breadth of our business and the lender can see that we are serious and would like to have us on board when it is appropriate.
Our philosophy on lenders is pretty much be straight with them and incorporate them as a vital part of your investing team.
cheers,
the B person [8D]
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