Cross collateralise IP's or not

S

samyip35

Hi all,
I've read a bit in this topic and it seems to be a 50:50 spilt between those who this it's good and those who think its not...

I'm wondering if anyone had any advice on this situation?

Currently got 1 IP and Goal is to buy another IP, and another after that.

Current status is:
IP $180k balance and $300k Val = $120k equity

New IP i want to buy is $200k purchase price

The bank that holds my current IP wants me to put both properties as security = $180k+$200k = $380k loan
With a total value of $500k which means the LVR is 76%, so no LMI needed.

However, that would mean that the 2 IPs will be cross collateralized...

Any advice?

Warm thanks
Sam
 
50 50? Doubt that would be the split. Every scenario is diferent but its pretty rare for xcoll to be in the borrowers interests. Your bank can set up exactly the same outcome without xcoll.
 
Speak to a broker, particularly with your goals of buying future properties to get this cleaned up.

You should be able to achieve the same result without cross-collateralising (i.e. get a term loan off your current property for $50k - 20% + costs estimate). Total balance secured by your other ip is $230k keeping out of LMI territory (although if you're looking at multiple properties LMI may be a worthwhile cost to pay to increase your leverage).

These funds can be used to purchase your investment property which can have a $160k loan against it (80%).

Cross-collateralisation isn't necessarly terrible when there's just the two properties involved but why put yourself at risk and give the banks more control than they need when it's unnecessary?
 
You should always avoid cross-collateralisation if you can.

Ignoring family pledge loans (where the parents use their property to guarantee a childs first home), of the hundreds of loans (may be over 1000 by now) I've set up, cross-collateralisation was only useful in 3 instances.

If the bank will let you avoid paying LMI by cross-collateralising, you can also avoid LMI without cross-collateralising and using a more favourable loan structure.
 
Last edited:
Don't do it. Simple. It sounds so benevolent in the beginning (oh you avoid LMI) then when you really need the cash - bye bye equity.
 
Thanks for all your replies.

It seems from ur replies that cross col can totally kill your equity and serviceability.. And since my goal is to keep buying, it doesn't align.

It now seems clearer why the bank told me that after buying this IP, I could only do it again ( buy another IP ) one more time.. Then I would need to Earn more salary in order to remain serviceable.. (i can imagine my boss' face when I ask for a payrise in these market conditions)

I might spread my bets with several lenders ..
They can keep IP1 and I'll buy IP2 through another bank and negotiate a better rate with IP1 (threatening to move IP1 to the bank with IP2)

Then repeat the process for IP3 etc..
 
samyip35 said:
I might spread my bets with several lenders ..
They can keep IP1 and I'll buy IP2 through another bank and negotiate a better rate with IP1 (threatening to move IP1 to the bank with IP2)

Then repeat the process for IP3 etc..
Click to expand...

i know what id do...
get my broker (who knows what there doing) to sort it out and do it for me while the bank pays them instead of me.
and all i do is sign a few papers and its done
whoever thought of a broker, it was the best idea since sliced bread
 
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