finance question after hearing from broker

Yes is the short answer!

My understanding of the principle of Cross Collateralisation in laymans terms is that the bank formally connects all loans to all your property. In other words your PPOR is collateral for IP1 and IP1 is Collateral for IP2 etc. Simply, the main implication of this is: The bank can foreclose multiple IP’s in order to recover their debt if they consider you a greater risk due to changes in the deals circumstances. A loss of job and therefore non-rental income, downturn in the market effecting valuations (and LVR’s), increased interest rates making servicability more difficult and high vacancy on the IP could cause the bank to take swift action if they consider their capital to be at high risk. Multiple loans, with different banks, with each loan covering 1 property only reduces the risk of the bank taking all your properties.

Gus

Hi Richmond

Basically what Michael says is (theoretically) correct, but he hasn’t taken into consideration closing costs. Assuming 5%, then the figure would come down to $1,320,000.

But you still must meet serviceability requirements, ie you must have the income to support the loan repayments.

Putting your figures into one of the bank calculators, I get a maximum borrowing capacity of $449,000 – without including ny potential rent from new purchases. Assuming you were to get a 5% rental yield this figure would jump to approx $685,000.

[I have assumed you get $370 pw rent for IP one, no children, no credit cards, and repayments for your current loans are $838/month and $1000 per month).

I understand why you don’t want to use the cash in your offset account. Mayabe you could, just get another split on that loan up to 80% LVR and use money from that as deposits, and keep the $55K in the offset. You could also increase the other loan up to 80% as well.

Down the track you can consider using low doc loans. These loans generally have a higher interest rate, but there is one low doc product at normal rates (6.07%) at 80% LVR. But you must be self employed for at least 3 years to qualify. This must be proved by an ABN registration. Therefore it may be wise to register for an ABN now in anticipation (costs nothing).

Don’t really know on the LMI angle. Some like to avoid it by paying bigger deposits, others like to put as little money into a deal as possible. I personally went for the later approach – I tried for as many 95% loans as I could get.

I think if you are going to pay LMI at some stage it would be better doing it sooner rather than later as the LMI crowd have stricter qualifying requirements, so if you wait till you do a few properties and then apply for a 95% loan, they may say someting like you are too rental reliant etc -Even tho you may still have the income to qualify for the loan.

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Hi,
I’m very new to this site, and found that these informations are so valuable.
My situation is so similar as Richmond, ie PROP for owner occupancy, and 1 IP, I think they are cross securitisation rather cross collateralisation. Can anyone suggest how can I rectify this situation, so that I won’t end up down the street if anything go wrong with my IP?
Many thanks,
Grace [?]

If you can find a really good property, why not use the $50,000 cash offset a/c money?
The gearing effect of property is a wonderful thing.
Also, have you got a home line of credit, also a wonderful thing: interest slightly higher but well worth the convenience and flexibility.
Get your home revalued and you can borrow another 66,000.
Serviceability is definitely the key.