Please explain "cross collateralising" PPOR and new IP

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neRok
Member
@nerok
Join Date: 2012
Post Count: 1
February 29, 2012 - 10:45 am
Hi, I have been doing some reading on here regarding getting second investment property. I currently have my PPOR which I would like to move out of, and am looking at my options. I found a similar thread here (https://www.propertyinvesting.com/forums/property-investing/help-needed/4343322), where the guy seems to be thinking about using equity on current PPOR as deposit for next PPOR. I’ve read similar threads on the same, and something that keeps getting mentioned is “Definately do not cross collateralise the 2 securities as this could cause problems in the future.”. What does this mean for such a situation.
One option the bank gave me is a 2nd loan on my current PPOR for deposit money to buy my next PPOR (with a 3rd loan). Current PPOR would become IP and the 2nd loan wouldnt be tax deductible.
Is this ‘cross collateralise ‘, having multiple loans on 1 property? Or is it having 1 big loan covering all properties (another option they suggested)?
Jamie Moore
Participant
@jamie-m
Join Date: 2010
Post Count: 5,069
February 29, 2012 - 11:22 am
neRok wrote:
One option the bank gave me is a 2nd loan on my current PPOR for deposit money to buy my next PPOR (with a 3rd loan). Current PPOR would become IP and the 2nd loan wouldnt be tax deductible. Is this 'cross collateralise ', having multiple loans on 1 property? Or is it having 1 big loan covering all properties (another option they suggested)?
Hi neRok
Welcome to the forum.
The set-up you've described is fine – that's how you avoid cross collaterisation.
There's also a couple of other things to consider if your current property is turning into an IP. You would want to convert the current loan on your PPOR to interest only (if not already) and arrange for a valuation to be carried out on it (so you have no issues with calculating CGT if/when you sell up in the future).
Hope that helps.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
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duckster
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@duckster
Join Date: 2004
Post Count: 1,674
March 4, 2012 - 9:03 am
it comes down to who is holding your title.
If you get a second loan and the bank says don't worry about a deposit we will add your other property as security plus the new property as security for this new loan that is cross colaterisation of securities .