Cross collateralisation question

Hi there

I currently own a PPOR which is valued at $1.1m with a mortgage of $820k against it. The mortgage is with ING. I have $820k in the offset account, fully offsetting the mortgage.

I also have an IP in North Sydney. It is valued at $420k and is financed with NAB with a loan of $328k. This is a fixed loan at 5.90% which is about to come off its fixed period on 20 February.

So, I have been looking at what options I have for my IP loan when it comes off the fixed loan period. I have been attracted to Adelaide Bank's product of a fixed loan with 100% offset so applied with them. In their view the property is 37 sqm in area. My view is 41 sqm as per the title, but we have a disagreement over the definition of what a balcony is. My view is that what the unit has is a sunroom, but they are viewing it as a balcony. They won't lend under 40 sqm. So my mortgage broker says I have two options:

1. Look elsewhere / stay with NAB
2. Offer up my PPOR as a second mortgage for Adelaide Bank (ie cross collateralise)

Can I get some thoughts on the following:

1. Is there any chance I can win the argument that the unit is 41 sqm, in which case they will lend to me? Any tips on how to do this? I have just given them the title search which shows 41 sqm as the area

2. Are there any other lenders who will lend to this unit (given its area) and also offer a fixed rate with 100% offset?

3. Should I follow option 2 above and cross collateralise against my PPOR? Is this a definite "no no" or are there circumstances where I should not be too worried about crossing?

4. Any other things I should be thinking about?

Many thanks for your help, as usual!!
 
I doubt you'll win the argument. They've got their opinion and they've got the money. :(

You could offer up your PPOR as security. It looks like your PPOR loan is at about 80% (ignoring the money in the offset) you'd have to reduce your loan on the PPOR to accommodate this. It could get messy.

There's a few lenders who will put an offset account against a fixed loan. The Adelaide and some building societies come to mind. In my experience the building societies tend to be extremely conservative and I don't believe they'll take on anything below 40-50sqm.


I know fixed rates are very attractive at this point, but have you considered simply setting letting the loan go variable and setting up an offset account against it? The forecast for the next year or so is that rates should remain fairly stable. Considering you may have a lot of cash in the offset, are you really missing out on much by fixing?
 
Can I get some thoughts on the following:

1. Is there any chance I can win the argument that the unit is 41 sqm, in which case they will lend to me? Any tips on how to do this? I have just given them the title search which shows 41 sqm as the area
^ Pointless ABL requires the internal living space to be over 40 sq meters. They will rely heavily on the valuer and what the valuation reports states.

Give ABL a flick.

2. Are there any other lenders who will lend to this unit (given its area) and also offer a fixed rate with 100% offset?

Credit Unions. This is a common feature of a few credit unions- fixed rate with 100% fixed.


3. Should I follow option 2 above and cross collateralise against my PPOR? Is this a definite "no no" or are there circumstances where I should not be too worried about crossing?


No...def not.

4. Any other things I should be thinking about?

1. Think outside ABL...other credit unions are offering a similar or even better rate on the fix + will finance > 35sq meters unit no issues at 80%.

2. Think long term- after the refinance what did you want to do...buy other IP? upgrade PPOR? etc...if so re-think about your structure and possible equity etc..



Cheers
 
Hi there

I currently own a PPOR which is valued at $1.1m with a mortgage of $820k against it. The mortgage is with ING. I have $820k in the offset account, fully offsetting the mortgage.

I also have an IP in North Sydney. It is valued at $420k and is financed with NAB with a loan of $328k. This is a fixed loan at 5.90% which is about to come off its fixed period on 20 February.

So, I have been looking at what options I have for my IP loan when it comes off the fixed loan period. I have been attracted to Adelaide Bank's product of a fixed loan with 100% offset so applied with them. In their view the property is 37 sqm in area. My view is 41 sqm as per the title, but we have a disagreement over the definition of what a balcony is. My view is that what the unit has is a sunroom, but they are viewing it as a balcony. They won't lend under 40 sqm. So my mortgage broker says I have two options:

1. Look elsewhere / stay with NAB
2. Offer up my PPOR as a second mortgage for Adelaide Bank (ie cross collateralise)

Can I get some thoughts on the following:

1. Is there any chance I can win the argument that the unit is 41 sqm, in which case they will lend to me? Any tips on how to do this? I have just given them the title search which shows 41 sqm as the area

2. Are there any other lenders who will lend to this unit (given its area) and also offer a fixed rate with 100% offset?

3. Should I follow option 2 above and cross collateralise against my PPOR? Is this a definite "no no" or are there circumstances where I should not be too worried about crossing?

4. Any other things I should be thinking about?

Many thanks for your help, as usual!!

1. I doubt it
2. A few
3. No
4. Yes

Why not consider partially variable and an offset against this with the rest fixed.

Also how much will you have in this offset? Perhaps interest rate won't matter too much.
 
Thanks very much everyone.


1. Think outside ABL...other credit unions are offering a similar or even better rate on the fix + will finance > 35sq meters unit no issues at 80%.

From my research and my mortgage brokers lender panel, we have been unable to find anyone that will fix and provide a 100% offset for the 37 sqm unit. Do you know of anyone that will do all three things?

Why not consider partially variable and an offset against this with the rest fixed.

Also how much will you have in this offset? Perhaps interest rate won't matter too much.

This is what I am now leaning towards and staying with NAB. I will do some numbers to get a feel for how much I will save over the next year or so.
 
From my research and my mortgage brokers lender panel, we have been unable to find anyone that will fix and provide a 100% offset for the 37 sqm unit. Do you know of anyone that will do all three things?

Have you looked into Wide Bay Australia?
 
I believe CBA would look at it.

Fix a portion + variable with offset.

No need to xcoll.

Thanks FMS. I believe their rates are very similar to NAB so wouldn't make sense for me to go through the hassle and cost of refinancing to get essentially the same product suite no?
 
Good call Terry, just looked at their website and saw they provide 100% offset with a fixed loan. Do you know if they finance 37 sqm units in North Sydney :)?

I think they used to, but just checking my broking software and it seems min 40sqm. But look into it further..
 
Thanks Terry. Any idea if the 40 sqm includes of excludes the balcony?

Taken from Aggregator software.

Studios & Apartments 25sqm - 50sqm Wide Bay Australia Full doc Date: 19-07-2006 Source: AFG Source Yes - max LVR 80%

Best to double check as this is info from 2006.
 
Taken from Aggregator software.

Studios & Apartments 25sqm - 50sqm Wide Bay Australia Full doc Date: 19-07-2006 Source: AFG Source Yes - max LVR 80%

Best to double check as this is info from 2006.

Many thanks FMS. Appreciate the help.

Terry - I understand re not getting paid! Thanks for your help in pointing me in the right direction nonetheless.
 
Just to round out the thread, in case anyone does a search for this...

I heard back from Wide Bay and they only lend to units above 50 sqm.
 
The market is a very, very different place to 2006. Since then we've seen a GFC, boom, correction, lenders rise and lenders fall. I wish we still had the lending conditions of 2006 but we don't and never will again.

There's a few lenders who will lend below 40sqm if the LVR is 80% or lower. I don't know of any that offer a full offset against a fixed rate.
 
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