Avoid cross collateralization

[stibbzy]

Hi gurus,

I need a little advice on whether I can avoid cross collateralization in my next purchase. My situation is as follows:

PPOR: 52% LVR P&I
1st IP: 107% LVR Int Only crossed/secured with PPOR.

We have made an offer to purchase a new property to be a 2nd IP for a few years before moving into it. We currently have a 16% deposit in our offset account and the remaining 4% could be access by crossing with our PPOR. However, I have read many posts on how bad cross collateralizing is.

Is it particularly hard to removed cross collateralization with another property after you have built enough equity to have the 2nd IP stand on its own feet?

I don't really want to move to another lender right now (ie one that does 85% no Lmi lends), as I am really happy with NAB and the 3 year rate I have secured if we go ahead.

Is there another option, I remember reading something about splitting the PPOR loan and borrowing off that but I don't really understand it!

I'd rather not discuss dollar figures here but am happy to chat over messages.

Thanks very much for any help or advice in advance.

 

[Rolf Latham]

Hi gurus,

I need a little advice on whether I can avoid cross collateralization in my next purchase. My situation is as follows:

PPOR: 52% LVR P&I
1st IP: 100% LVR Int Only crossed/secured with PPOR.

We have made an offer to purchase a new property to be a 2nd IP for a few years before moving into it. We currently have a 16% deposit in our offset account and the remaining 4% could be access by crossing with our PPOR. However, I have read many posts on how bad cross collateralizing is.

Is it particularly hard to removed cross collateralization with another property after you have built enough equity to have the 2nd IP stand on its own feet?

I don't really want to move to another lender right now (ie one that does 85% no Lmi lends), as I am really happy with NAB and the 3 year rate I have secured if we go ahead.

Is there another option, I remember reading something about splitting the PPOR loan and borrowing off that but I don't really understand it!

I'd rather not discuss dollar figures here but am happy to chat over messages.

Thanks very much for any help or advice in advance.

It would be a rare Res I deal that can't be put together without xcoll.

But xcoll in isolation won't be your problem.

Reality is though your convenience and perceived comfort with nab will be your long term limitation and possible undoing...... assuming u want to grow a bigger portfolio

Ta

Rolf

 

[Peter_Tersteeg]

By default NAB will cross-collateralise your loans. In your case, there doesn't appear to be any need to cross anything at all. It would be difficult to clean up your existing cross-collateralisation and avoid it on the next purchase without moving some of your properties away from NAB.

There's unlikely to be a need for you to look at a 85% no LMI deal either.

The NAB 3 year fixed rate is reasonable, but a quick look reveals that AMP, ANZ, Bank Of Melbourne (St George), CBA, ChoiceLend, HomeSide & Westpac all have the same rate or better.

If you're looking to keep things quick and simple, NAB may be fine (although my experiences with them are neither quick nor simple, but others disagree).

If you're looking to build a larger portfolio of properties, I'd be looking to restructure things differently whilst it's still reasonably straight forward to do so.

 

[Rolf Latham]

Hi gurus,

I need a little advice on whether I can avoid cross collateralization in my next purchase. My situation is as follows:

PPOR: 52% LVR P&I
1st IP: 100% LVR Int Only crossed/secured with PPOR.

We have made an offer to purchase a new property to be a 2nd IP for a few years before moving into it. We currently have a 16% deposit in our offset account and the remaining 4% could be access by crossing with our PPOR. However, I have read many posts on how bad cross collateralizing is.

Is it particularly hard to removed cross collateralization with another property after you have built enough equity to have the 2nd IP stand on its own feet?

I don't really want to move to another lender right now (ie one that does 85% no Lmi lends), as I am really happy with NAB and the 3 year rate I have secured if we go ahead.

Is there another option, I remember reading something about splitting the PPOR loan and borrowing off that but I don't really understand it!

I'd rather not discuss dollar figures here but am happy to chat over messages.

Thanks very much for any help or advice in advance.

Another obvious one is u want to convert the current poor loan to io if you are going to make this an IP long term

Nab may do that for you, but you need to have a good case for them

Ta
rolf

 

[Peter_Tersteeg]

Just responded to your PM with some futher details.

There may not be much that can be done at this point, but in future a better way would be to access your equity in your PPOR (or IPs) via a separate investment loan against your PPOR, or an increase on the existing IP loan.

This then gives you cash for deposits, rather than cross-collateralising two or more properties.

Given you've paid a rate lock (from your PM to me), I suspect NAB may not let you restructure at this point. If this is the case, you've got two choices:
1. Forgo the better fixed rate and restructure.
2. Take the fixed rate now, but in 3 years, clean things up.

Using NAB exclusively and cross-collateralising everything will create a lot of pain eventually. In 99% of cases it doesn't favour you and is unecessary, but avoiding it does take some pre-planning. This late in the game you'll likely either have to accept it if you want to keep your existing deal with NAB.

 

[stibbzy]

Sorry, I updated the 1st IP LVR, it's actually 107%.

My reasons for staying with NAB is due to significant allowances I receive from my employer towards my PPOR if I use NAB, and the rate for fixing that I negotiated is not the advertised rate.

Basically, using offset funds and crossing with my PPOR comes to a total LVR of 79%. If I try to use offset funds support the new property by itself I get to 84%.

Rolf- thanks for the advice on turning the current PPOR interest only. I didn't realize that might of been an issue in the future...

Thanks for the help so far

 

[Marty McDonald]

Ideally you want to untangle all properties however a compromise could be to do a new split using the two securites you currently own for the 20% deposit + costs (or just the 4% you need) and a new loan as a stand alone deal at 80% secured solely by the new prop.

You could use Nab or a different lender for the new property but as mantioned Nab will try an cross you up.

This way at least you only have 2 properties tied together not 3.

 

[Rolf Latham]

Sorry, I updated the 1st IP LVR, it's actually 107%.

My reasons for staying with NAB is due to significant allowances I receive from my employer towards my PPOR if I use NAB, and the rate for fixing that I negotiated is not the advertised rate.

Basically, using offset funds and crossing with my PPOR comes to a total LVR of 79%. If I try to use offset funds support the new property by itself I get to 84%.

Rolf- thanks for the advice on turning the current PPOR interest only. I didn't realize that might of been an issue in the future...

Thanks for the help so far

defence loan............so keep the PPOR loan at NAB

and clean up the rest.

Not hard to do

ta
rolf

 

[davidw89]

I got the same issue! It seems like NAB cross collateralised my two home loan (one PPOR and one Investment) without me knowing! I'm applying for my third mortgage with NAB and they want to cross collateralised it across as well. Is it too late to untangle this mess? I should have known when I refinanced across from Westpac.

 

[Terry_w]

I got the same issue! It seems like NAB cross collateralised my two home loan (one PPOR and one Investment) without me knowing! I'm applying for my third mortgage with NAB and they want to cross collateralised it across as well. Is it too late to untangle this mess? I should have known when I refinanced across from Westpac.

its never too late and best to do so now rather than get even more entangled.

 

[Colin Rice]

I got the same issue! It seems like NAB cross collateralised my two home loan (one PPOR and one Investment) without me knowing! I'm applying for my third mortgage with NAB and they want to cross collateralised it across as well. Is it too late to untangle this mess? I should have known when I refinanced across from Westpac.

Should be easy enough if you engage the right person to do so and as long as their are no fixed loans in the mix that if broken will likely incur break costs.

You can tell if the securities have been crossed by reading the "security" section in the loan contracts. If more than one security listed then its crossed.

Surprising how many people come to me to get the loan structure corrected that have told the bank not to xcoll and they still do anyway.

 

[davidw89]

Should be easy enough if you engage the right person to do so and as long as their are no fixed loans in the mix that if broken will likely incur break costs.

You can tell if the securities have been crossed by reading the "security" section in the loan contracts. If more than one security listed then its crossed.

Surprising how many people come to me to get the loan structure corrected that have told the bank not to xcoll and they still do anyway.

I just had a look at the contract and in the security section, there's a mortgage over the two property. That is, one home loan, two security! Another home loan, two security! Sigh. What are the cost associated with uncross collaterising? Also, how had is it to xcoll with NAB?

I'm 100% variable, LVR<70% in both property. Shouldn't be too much of a problem right?

What's the best way to structure for my third investment property purchase?

 

[Colin Rice]

I just had a look at the contract and in the security section, there's a mortgage over the two property. That is, one home loan, two security! Another home loan, two security! Sigh. What are the cost associated with uncross collaterising? Also, how had is it to xcoll with NAB?

I'm 100% variable, LVR<70% in both property. Shouldn't be too much of a problem right?

What's the best way to structure for my third investment property purchase?

About $500 to restructure.

Would need more info to advise corectly on the structure but fairly simple of you know how to.

Also would depend on your individual circumstances and short, medium and long term goals.

 

[ObuRamaraj]

I agree with Colin. I've had a couple early this year, late last year where clients wanted to uncross and banks were not helpful!

 

[Colin Rice]

I agree with Colin. I've had a couple early this year, late last year where clients wanted to uncross and banks were not helpful!

I have never had a bank contest xcoll restructure as they are aware you will take the client elsewhere.

 

[TheSilverBear]

Sorry for the naive question - what's wrong with xcoll?
Is it that all your properties are at risk if there is a crash?

I'm looking at our first IP (will post a hello thread when I've time) - and my broker is saying i shouldn't worry too much about xcoll (we are with NAB).

Thanks in advance

 

[Terry_w]

Sorry for the naive question - what's wrong with xcoll?
Is it that all your properties are at risk if there is a crash?

I'm looking at our first IP (will post a hello thread when I've time) - and my broker is saying i shouldn't worry too much about xcoll (we are with NAB).

Thanks in advance

in brief.

Mortgagee can take possession more easily over properties held as security - avoid it gives you time to sell.

 

[Corey Batt]

in brief.

Mortgagee can take possession more easily over properties held as security - avoid it gives you time to sell.

One of the main problems. Others include issues with valuations, where if one property reduces in value in the portfolio, it can put a stop to you drawing funds from another property.

Sounds like you have a lazy broker if they're genuinely suggesting that x-coll isn't a problem. If that's the case, kick 'em to the kerb and get a broker who is putting your best interests first.

 

[perthguy]

Sorry for the naive question - what's wrong with xcoll?

As mentioned above and also, if property one is security against property two and you try to sell property one, it is more complicated than it should be. Also it's more expensive to refinance if you want to uncross at the same time.

 

[Redom]

Sorry for the naive question - what's wrong with xcoll?
Is it that all your properties are at risk if there is a crash?

I'm looking at our first IP (will post a hello thread when I've time) - and my broker is saying i shouldn't worry too much about xcoll (we are with NAB).

Thanks in advance

Expanding on the valuations side of things - for an investor, diversification is important. If one market falls and the other rises, you may still have equity to tap into to fund future growth. Diversification in markets gives you this benefit. However, if your crossed, you wont be able to tap into the growth property as the overall usable equity will be dragged down (in valuation terms) by the other security.