Cross-collateralisation

[YoungGun]

Looking at my second IP and currently have a 'pro pack' loan with St. George $395/pa with all the bells and whistles.

Everything I read seems to say do not cross-collateralise!

My situation:
1. IP 1 Loan amount $246k - Value $400k

2. Budget IP 2 - $550k purchase price

I want to maintain 80% LVR so cash savings will make up the shortfall in equity.

Questions
a) At only two properties do you see any risk with collateralisation
b) are the advantages of 1.0% off standard variable rate worth it (loan amount over $750k) compared with 0.7% now.
c) Should I refinance with St. George leaving IP 1 with a loan of $320k (me with additional $74k cash?)


May be a silly question but if I do point c) and then take a loan out with St. George with that cash is that still cross collatorisation?

i.e.

Scenario 1 - St. George

IP 1 Loan amount $246k - Value $400k LVR 61.5%
IP 2 Loan amount $514k - Value $550k LVR 93%

TOTAL LVR 80%

Or

Scenario 2 - St. George
IP 1 Loan amount $320k - Value $400k LVR 80%
IP 2 Loan amount $440k - Value $550k LVR 80%

TOTAL LVR 80%

Or

Scenario 3
IP 1 Loan amount $320k - Value $400k LVR 80% :- St. George
IP 2 Loan amount $440k - Value $550k LVR 80% :- Alternative lender

TOTAL LVR 80%

 

[Jamie M]

Hi young gun

Your loans don't need to be crossed if you stick with STG.

Just do an increase on IP 1 and use these funds as the deposit on IP 2.

Just because all loans are with the same lender doesn't mean they're crossed.

Without knowing anything about your situation - if you set the next loan up with STG you should be entitled to a lower rate across all your borrowings because you would have exceeded the $500k (or possibly $750k) mark.

Cheers

Jamie

 

[Rolf Latham]

Hi YG

What Jamie so wisely said

I would add, that up to a mill exposure with the one lender is generally ok, but much depends on where you are atm, your resources goals and risk profile.

More importantly, do u have a PPOR ?

ta
rolf

 

[Peter_Tersteeg]

I agree with the previous two posts, but there is a small gotta to be aware of.

With the second property, make sure you set up a second 'Advantage' package. St George will cross-collateralise all securities within a single package, no exceptions.

They will waive the annual fee on any subsiquent packages.

 

[YoungGun]

Thanks for all the responses.

My goals are in this market to stick at 80% LVR and be as neutrally as geared until the property market gets going and I can be a little more risky. IMO no point in losing big $$$ each year if there will be little capital gain to be made.

Rolf Latham - I have no PPOR (I'm either living in hotels or back with the parents because of work) however I would be sharing (renting) over the next couple of years. How does this effect me?

PT_Bear - interesting statement re: second 'Advantage' package. I just thought the whole point of advantage package was do have separate loans within the same package?

Jamie M - looks like I'll be heading towards

Scenario 2 - St. George
IP 1 Loan amount $320k - Value $400k LVR 80%
IP 2 Loan amount $440k - Value $550k LVR 80%

TOTAL LVR 80%

Do I just ring the bank now and say "hey IP1 is worth $400k, give me $74k?"
Then, do I keep the money in offset account until I find a suitable IP2 ?

 

[Peter_Tersteeg]

Lenders want to know how much your accomidation costs are, which effects how much you can afford to borrow. Beyond that, your choice of accomidation doesn't have much effect on the application. Some lenders will assume a 'basic' living costs of accomidation even when living with parents, otherwise it'll be how much you pay in rent.

I agree with the idea that you should only need a single package, rather than multiple ones, but that's one of the quirky things about St George. The other quirk is their offset account.

At this point I'd look to option 2 as well. Give Jamie a call and ask him to implement it for you.