Cross Collateralizing

No pros only cons

Major one is when you go to sell one of the properties the other ones will need to be valued. This can cause all sorts of dramas relating timing, re-assessment of loans and requirements to pay down remaining loans (maybe reducing non deductible loans). I have seen one person who sold a property yet could not settle because the remaining property had dropped in value and the proceeds were not enough to settle. He could not settle on the sale property because the bank refused to release. Sale fell thru and he ended up bankrupt.

Another client approached as he had quit work and was living the life retired early. He needed to sell one property to free up some living expenses and pay down debt. Lender required all funds to be paid into remaining loans – this naturally hindered his retirement and he needed to either work or sell more property to get those living expenses.

Fix it now while you still can.

Agreed completely with Terry. There is almost no practical benefit to x-coll, so it’s best to have this sorted out sooner rather than later.

It may seem daunting, but a decent broker can unravel the mess if they know what they’re doing. :)

There is a benefit to cross col – to the bank not the borrower.
The bank will have more security than it needs and will make it more difficult for the client to leave – whether refinancing or selling. This will also allow them to reassess you at discharge time and to decide whether they think you are a risk or not.

We also got caught with this one when our rural property was cross collateralised with our city property. When we wanted to sell the city property, the bank’s 50% LVR for rural properties came into play and we had to pay most of the proceeds into the rural property loan. We changed banks – it limits which bank you can use though as many have this rule.