At the moment we are trying to organise finance for our first IP. Our usual bank NAB is more than happy to loan 110% using 80% of IP plus equity in our home – does this mean we are cross collateralising?? I have tried to ask the right questions & have been told that the loan for the IP will be on its own & there will be no 2nd mortgage etc on our original home but I am still not convinced, especially when I was told I would save on stamp duty by somehow using existing stamp duty paid on original home??
What do I need to ask, check or do??
Thanks for any suggestions
Viv[
]Hi,
Why do you want to avoid cross collateralising your properties? What is your investment strategy?
It is hard to work out whether your scenario relates to cross collateralisation or not. Ask what the security is for your new loan. If it is only the new IP, then it should be a stand alone mortgage.
What the NAB may be doing is increasing your current owner occ loan (topping it up) to pay for the costs + 20% deposit on the new IP. If this is the case then your properties would be stand alone.
If the new loan is over 100% of the value of the investment property, then the properties are most likely cross collateralised (both current home and IP used as security for both mortgages)
Hope this helps,
Cheers and happy investing,
Nathan.
Hello,
In reference to what Nathan said:
Why do you want to avoid cross collateralising your properties? What is your investment strategy?
I have heard that cross collateralising was something to stear clear of. If my investment strategy is to buy 10 places over the next 10 years, and I don’t have a huge income to afford a deposit each year, are there alternatives to cross collateralising?
Any suggestions?
Cheers
Gerry
Hi,
Cross-collateralising (CC) means securing one property using the title of another.
For example, if you have ten properties and all ten properties sit as collateral for any one mortgage.
Lenders do this so they have absolutely 0% risk in the loan. I fight tooth and nail to have my deals sit alone because I see CC as unnecessary.
Loans on wrap properties should never be CC as this would probably breach the Sale Of Land Act.
As for the 110% loan – yes, I’d say that the mortgage on the investment property would be secured against both the investment property and also you private home.
There will be no 2nd mortgage on your home… just a bigger $$ 1st mortgage.
I’m not sure about the stamp duty savings…???… possibily on the registration of the mortgage, but this would not be a lot of money.
You can avoid CC by borrowing 80% of the purchase price and making it known in the strongest possible terms that the loan is to stand alone.
Bye,
Steve McKnight
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Hi Judith,
Yes it seems like they will cross collaterise. This may be good or bad. (Yes there is a good to it) But in your case it would be bad.
You want each mortgage to be seperate. So this is what you may want to do.
Ask your bank to revalue your property an borrow the 20% you need to purchase your IP. (I would recommend a LOC but you can do it with your existing loan. A LOC is a bit more flexible and will allow you to get more IPs in the future without having to revalue your PPOR all the time.)
OK Here is an example.
Let’s say you have borrowed 200K on your PPOR which is valued at 400K. This means that the bank will allow you to borrow a maximum of 400*80% = 320K. This means that you can have access to an extra 120K. Depending on how much you need for your IP you can ask the bank to give you the money you need from you PPOR.
I hope this all makes sense. (This may be what they are going to do in the first place. Just make sure…)
APIM
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