Pulling equity, X-coll?

Ive pulled equity from one property to purchase another one before and now Im looking at pulling more out of that same workhorse I used as a deposit for the last property to purchase another, would this class as cross collateral?

So IP 1, pulled equity to purchase another
IP 1, pull more equity to purchase another.

You are cross colled when your lender holds more than one title as security for any one loan.

Hope this clears the mud for you.

Thanks Rixter,

So let me get this straight

youre not X-coll if youve refinanced a property to purchase another but do it again with the same property and youre X-coll?

It depends how you've structured your security during the refinance.....

I cant explain it better that what I have.

Look on your loan document and if more than one property title is used to secure that particular loan then yes you are cross colled.

So one loan has no more than one property title held as security over that loan, for it to be NOT cross coll.

Hope this helps.

It has nothing to do with whether it's an initial finance or a refinance, or how many times you've financed it, or what purpose the funds are for, etc.

If you have two properties and two mortgages, you're cross-collateralised if any of your debt is secured against both properties.

Non-cross-collateralised:
Property 1 has a loan (loan 1) secured against property 1 only, with lender 1
Property 2 has a loan (loan 2) secured against property 2 only, with lender 2

Cross-collateralised:
One or both of the above loans are secured by both properties. eg loan 2 to purchase property 2 used equity from property 1, and thus might be secured by both property 1 and property 2.

If lender 1 and lender 2 are the same institution, then you're effectively cross-collateralised anyway, even if only one property is mortgaged against each loan, because of the "all monies" clause, which all lenders insert into their contracts. The "all monies" clause effectively says that any assets on which that institution has a claim (eg a mortgage over) can be used to satisfy any debt to that lender.

So it's prudent not to have too many loans with one institution.

Hmm, it seems nobody really knows, I was under the impression that youre X-coll if you use 2 properties to buy 1 but it seems there are many ways to tie things up, scary...

Thanks Ozprop,

So that means that anyone who has used equity to purchase another is X-coll?

want2bewealthy said:

Thanks Ozprop,

So that means that anyone who has used equity to purchase another is X-coll?

Click to expand...

No. The secret is in Ozperp's use of the word "secured".

It is as Rixter says:

"You are cross colled when your lender holds more than one title as security for any one loan."

Regards Jo

Let me try!

Both Rixter & Ozperp have explained it well.

You have property A, worth $500,000 and a loan of $300,000 with Bank X. For the purposes of this example, you already have a LOC with your loan to 80%. The loan documents with Bank X state the security for this loan is against Property A.

So you see a new property, lets call that Property B, that you want to buy and you want to take the $100,000 and use it to purchase it. You will purchase it for $400,000. (I am leaving out stamp duty). You go to Bank X and say I want to buy Property B, will you give me a loan. The bank says yes for a loan of $300,000. The loan documents for Property B with Bank X, say security for mortgage is Property B. In this scenario you are not x-coll.

If however, in your loan docs the security details for the mortgage states both Property A & B, then you are x-coll.

Extracting equity to pay for another property in itself has nothing to do with being or not being x-coll. Using the same bank however, leaves it open for it to happen, you need to be explicit with your instructions to the bank.