Hi guys, i have looked at the forum on cross collaterization but am still unsure when related to my own situation.
We currently have a PPoR and my bank and accountant say it is best to cross collaterize. I have found a positive property and have formed a discretionary trust for the upcoming purchase. Apparently it is messy to get a loan increase on the PPR to get the investment property from the accountants perspective and the bank said that it saves money in application O costs and could also loan 105%.
Through reading many different peoples stuff, I thought that it was bad to cross collaterize as if something goes wrong with one property they can also take the other one. But the accountant said it doesn’t matter they can take the other one as well even if it is not used as security.Also if we use the PPor as security, doesn’t that link your personal assests with the trust assests making the trust less valid in its asset protection. Which way should I go. If not cross collaterize what is the best way to use my equity. note I currently have some of my PPR fixed at 6.15% for 3 years and to break it would cost $350 but then why would I at this rate?
Any help would be appreciated.
Jacq[blink]Hi Jacq
Does your Accountant work for the bank? Just kidding!
From a finance point-of-view, the problem with cross-collateralisation is that if your goal is to acquire multiple IP’s you have to keep adding more properties to this cross-collateralised mess until your bank says no more, at which time you have to refinance the whole portfolio to another bank/lender to purchase again, which will be costly each time.
There is no flexibility because you are tied to one bank who may not understand your investment goals.
Keep it separate and when you have equity in a property available to redraw you are free to do it to purchase another property.
It is not messy to get a line increase on your existing property, your manager is just too lazy to do it, or he/she doesn’t even have any IP’s of their own and is not educated enough to advise you.As for breaking the fixed rate, a cost of doing business I believe. If rising interest rates concern you, think about a split fixed/variable loan.
Good Luck!
Brendon
Acute Mortgage Reductions
‘Better Finance for More Homes Sooner’
http://www.acutemr.com.au
[email protected]Jaqui,
My personal opinion is keep youw own home seperate from you investments, if you want to CC investment properties in the future thats o.k.
Have you got a solicitor, it’s ok to get financial advice from your accountant I would hear your banker but not listen. Ask your soicitor the reason you keep your personal assets seperate from your IP’s. Its ok to try and be creative with the finance options to achieve our goals but there still has to be an element of risk reduction.
The decision will ulimately be yours.
aluminati
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