Hi all,
I am new to the site and have been following most of your discussions with lot of interest and have found them very educational. I am brand new to the the property investing scenario and would be grateful if some one could explain to me the meaning of cross colateraliztion . I have some equity in my PPOR which I hope to release for purchase of IPs. I have read that it is not safe to have an equity mortgage and investment mortgage with the same bank as they may cross co-lateralize both properties. Is that right ?
many thanks in advance for your help .
Hi investor_today
Welcome aboard
It's possible to have the two properties with the same lender without them being cross collaterised.
It just all comes down to how the banker/broker structures the loans.
Most bankers (and brokers for that matter) will simply cross up your loans because a) they don't know any better and b) it's quick and easy to do. This is rarely in your best interest.
If you're worried about your structure not being set up properly then you should seek expert assistance from a broker/banker that deals with investors and know a thing or two about setting up finance structures for investors.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Cross collateralising is when you use 2 properties as collateral for the one loan.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Jamie is right, I’ve met so many brokers that told me to cross collaterise my properties. It wasn’t until I joined this forum when I found our there is a better way to set things up.
As Joe mentions you will be surprised how many Bankers / Brokers actually think it is a good thing.
Also what lenders tell a client is amazing.
Have a forum client who we started to untangle his CBA loans in Feb of this year and eventually we managed to get them sorted, loan approved and mortgage documents signed.
Settlement was next week and he phoned yesterday to say that he has decided to stay with CBA as they have now offered him a further 0.1% discount and a promise that the loans are now miracliously uncrossed. Trouble is nothing has changed and he just can't see it.
Other than being a total time water for 9 months (And yes i might name him a further post) he is being deceived by his existing Bank.
Set things up properly from day 1 and you wont have issues into the future.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Qlds007 wrote:Settlement was next week and he phoned yesterday to say that he has decided to stay with CBA as they have now offered him a further 0.1% discount and a promise that the loans are now miracliously uncrossed. Trouble is nothing has changed and he just can't see it.
That's frustrating.
So in the end, the client has decided to opt for a minor rate discount but a sub optimal loan structure which is no doubt going to cause them more dramas in the future – both in costs and lost opportunity because they'll end up in a position where they can't borrow more.
Makes no sense to me – and it baffles me what lenders can get away with saying to clients. Had another major tell a client the other day that "there's absolutely nothing wrong with crossing your loans – but if you stick with us for your next one, we will make sure that we don't cross it"
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
You have it in one Jamie.
Just to add fuel to the fire the Bank have also told him that as he has recently sold a property when it comes to settlement he can have all of the net loan proceeds and the 120% loan he has on the 2 IP's can remain.
Me though they would revalue and reduce the lvr accordingly.
How ignorant.
Course come the next rate reduction his rate will be 0.10% higher than the product i recommended and so it goes on.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Richard I have a feeling this guy will be calling you again in a few months to help him untangle the new mess he got himself into. 0.1% isn’t that enticing!
Cross-collaterisation is one of the first points of advice I put to a potential client when they ask why they should use my services instead of going direct to a bank.
A banker doesn't care what they do with a clients loan, as long as they get them to sign on the dotted line. They also play of the fact that most clients are naive, as long as they stick a decent interest rate in front on them, the client is happy without fear of what may happen in the long term as they don't know better. There is basically no recourse against bankers, and once the application is done and dusted, they disappear and the client doesn't hear from them again.
Cheers
Tom
PLC wrote:as long as they stick a decent interest rate in front on them, the client is happy without fear of what may happen in the long term as they don't know better.That's part of the issue.
Some people are so driven by the "lower rate" that they lose focus of the bigger picture.
A $20 a month saving because of a 0.1% discount now can end up costing tens of thousands in missed opportunity later on.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi all ,
thanks so much for your input..I really appreciate it.
And Jamie thanks its good to be on board.
If I ask the bank to not cross then can they still do it without my knowing. I suppose my question is how do I ensure that cross co-lateralization doesn't happen? Is it in the documents we sign?
Hi Investor
Yes it will be in the Letter of Offer under security.
Your Banker may not understand how to do the deal with C/C.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Despite what they say banks are not about looking after your interests Their primary responsibility is to their shareholders and to reduce their risk exposure they have.
The more they lock you up AKA cross collateralise loans the more secure THEY are.
Four brokers have responded to your question – you could do damn site worse than with one of them. And if you are worried because they live 'away' from you – that is only an issue in your mind. Modern and effective business people can work across the nation and across the world.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
