Cross-collateralise loans

[trish266]

I am reading the Jan edition of Australian Property Investor magazine.

"Top Five Finance Tips." written by Kevin Lee Smartline Personal Mortgage Advisers.

Point 4 is very interesting! He is suggesting cross-collateralising your portfolio in
order to get a better interest rate.

There are lots of experts on this forum. I would be interested to hear your points of view.

 

[Peter_Tersteeg]

He's wrong. Interest rate negotiations are generally based on things like total lending. Cross collateralised or not, the amount is still the same, as is the overall LVR of the portfolio with that lender. I've never had a lender actually say that if the loans were crossed they'd give me a better deal. We avoid crossing as a general policy and we also negotiate improved rates all the time.

 

[Marty McDonald]

He doesn't know much then

 

[Aaron_C]

Wrong wrong wrong. Even if the discount thing was true it is more than outweighed by having your finances controlled by a lender. I hope his clients don't get into sticky situations in the future.

 

[ZachAnSel]

He surely never sell, ask people who have cross coll and have to sell. Meanwhile banks deliver low valuation on the property.

 

[Rolf Latham]

I am reading the Jan edition of Australian Property Investor magazine.

"Top Five Finance Tips." written by Kevin Lee Smartline Personal Mortgage Advisers.

Point 4 is very interesting! He is suggesting cross-collateralising your portfolio in
order to get a better interest rate.

.

Here we go......... my hobby horse for the last 13 years, and thankfully something I learnt about very early in my broking career from a great mentor.

Assuming Kevin has been correctly quoted and in context here, to a large extent what Kevin says is true with some lenders that want to have the min number of loan splits, wesuck being one. To get as few loans as possible, you need to cross your portfolio up, and in doing so, with some lenders you may save 10 pts and few bucks in fees.......... whats the real cost though??

In most cases XCOLL is negligent advice, in that an appropriate duty of care has not been provided to the client.

If the borrower was given the CHOICE of xcoll once they know the many cons , vs the occasional pro, AND how to properly scale/weigh these risks, very few will continue down that path

The issue simply is a lack of disclosure, more often than not simply due to the ignorance of the credit adviser/Banker / broker. In some cases though, Id expect there is a clear witholding of material information, placing the borrower at significant disadvantage.

You cant advise on risk that you cant perceive,identify, and quantify.

A little while back I wrote this,most of this still holds, and there are other items that can be added.

http://somersoft.com/forums/showpost.php?p=120656&postcount=6

There are perhaps ? 1 in 100 borrowing circumstances where xcoll is worth the risk and presents a workable argument for the borrower.

Compounding concentration risk by adding cross coll to a large portfolio shows either ignorance of the risks, or a simple contempt and disregard for the borrowers' welfare.

In part, this is somewhat easier to understand if you are working with a banker, since they are the agent of the lender, but is pretty much unforgiveable in the case of a broker who is meant to be the agent of the borrower.

Pretty sad reflection of the broking side of the industry

ta

rolf

 

[D.T.]

Rolf,

Are you few of those 10 reasons in your yesteryear post still valid given that breakcosts work differently under the new legislation?

 

[Rolf Latham]

Rolf,

Are you few of those 10 reasons in your yesteryear post still valid given that breakcosts work differently under the new legislation?

not specifically on that point no, but if your retained property is under water, you need to pay LMI again, credit has gone soft, your income resources have gone south.

The one BIG one thats not in that 2004 post ( because back then post gfc property was pretty bullet proof and it didnt happen much)

but................ the sale of one retaining the other has become a big hassle for many unsuspecting folks

say you have 2 props crossed and are selling one. The retainedsecueity has to be enough to support the remnant loan. In some areas of SW sydney, Melb and the GC


Please produce 30 to 150 000 so as to allow the loan to stay at 80 % lvr
has not been an uncommon call on sale of crossed props.

So now what do you do ?

vs

stand alone loans, youd be out home and hosed usually because the retained prop would never have been valued

ta
rolf