Hey guys,
Just a couple of questions regarding cross-securitisation.
1. What exactly is cross-securitisation.
2. How does it work/what is the procedure.
3. What is the benefit of cross-securitisation compared to setting up a normal p&i loan with two security properties.
Cheers! [biggrin]
Kano
Hi Kano,
Cross Securitisation also known as (X-Coll) Cross Collateralisation, occurs when a single loan is secured by Two or more properties,
e.g., a Lending Institution include the equity in one property to cover the equity shortfall in the other property, the result is X-Coll, one loan secured by two or more properties.The downside to X-Coll, apart from accessing equity and refinancing issues to name a few, is the risk of loosing both properties in the advent of foreclosure, there are certain situations where X-Coll cannot be avoided, but in most cases it can and should be.
Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
not a go idea if you want your assets safe
Hi Mortgage Broker,
you posted the following:
The downside to X-Coll, apart from accessing equity and refinancing issues to name a few, is the risk of loosing both properties in the advent of foreclosure, there are certain situations where X-Coll cannot be avoided, but in most cases it can and should be.If you buy a property and the bank requires additional security — how can you avoid not putting a second property on the line.[angry2] It seems to me that the only way to avoid X-Coll is to put down a sizeable deposit in the first instance, so that the bank is protected in the case of loan default.
Also, could you explain what you meant by:
The downside to X-Coll, ……. refinancing issues to name a fewJust a few pointers to clarify your comments in relation to refinancing would be great.[biggrin]
thanks
Helen
Hi Helen,
I am not a broker but one technique that is commonly use by investors is to apply a LOC against the equity you have in a property that you owned and use the fund as deposits for additional IPs. That way you only tied up one property with one loan and not risking other IPs in the event of foreclosure as pointed out by Steve. Also, when it comes to sell one of the IPs, you’ll only have one mortgage to discharge (less messy and cost less!). Same applies to refinancing. Plus your accountant will appreciate it too!
In addition to the above, we also used different lending institions for each IPs. This way we can get our IPs revalued every couples of years. You stand a better chance of getting a higer valuation as different lending institutes have different set of criteria and valuation panels, etc.
Other thing that comes to mind is, if service is not a issue try not to apply under joint names.
I hope these make sense!Hi Helen,
High Flyer is absolutely correct,In most cases there is no need to include a second property as security over a single loan,
If you don’t have the required deposit and want to avoid X-Coll, simply access the equity in the second property in order to raise the required deposit on the new purchase, The LVR will be higher but the total loan amount remains the same.“Also, could you explain what you meant by:
The downside to X-Coll, ……. refinancing issues to name a few
Just a few pointers to clarify your comments in relation to refinancing would be greatâ€Lets assume you have a portfolio of 3 IP’s all X-Colled, the 3rd is the only property that has increased in value, you decide to access the equity available in IP3 for a deposit on another purchase,
unfortunately the bank declines your request for further finance(as they do from time to time)
In this situation you are forced to refinance Three properties across to another lending institution in order to access the available equity in One property, I hope this helps,cheers.Regards
Steven
Mortgage Broker[email protected]
http://www.mobilemortgagemarket.com.au
Ph:0402483216
Ph:1800 820 500
VICTORIAPLEASE note comments made should not be taken as specific taxation, financial, legal or investment advice.
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