cross collateralization - clarification

Hi.

Ive read prior post but still confused.
currently i have a ppor say as an example worth 500k and owe 200k. Looking to get a loan for an IP and bank suggested cross collateral since i can use my equity of 300k.

Wondering how i can avoid cross collateralization? Do i just ask my bank to not cross collateralize? If they cant do i go to another bank or broker? Any suggestions for sydney? Also how would i access the equity if i apply for the loan with another lender?

Thanks all.
 
currently i have a ppor say as an example worth 500k and owe 200k. Looking to get a loan for an IP and bank suggested cross collateral since i can use my equity of 300k.

You can't get to $300k, BUT you can get to about $200k.

If you don't have redraw, you refinance the house to say an 80% loan ($400k total). As you still owe $200k, you'll get $200k in cash.

Just go and use that as deposit for your IP purchase.

The Y-man
 
NEVER Cross Collateralise with ANY BANK under ANY circumstances....if you do it is paramount to you being a girlfriend to a really big and hirstute guy named Donk at Long Bay Jail!

I have seen go under because of this...in a bad market if get into trouble they can pull the carpet underneath you and you can go bankrupt.:(
 
Just get a new loan with the existing bank with the security being the same property, the PPOR. This loan should be a LOC ideally or a IO loan with redraw.

Use this for the deposit.

Borrow 80% of the new property IO with the remaing 23% from the LOC = 103% finance without crossing.
 
Best to avoid Cross Collateralising.

To set it up, ask for a separate split loan against your current property. This loan should be used as a deposit for your new investment.

Then separately, take out another loan for the purchase of the new IP.

You'll need to ask your broker/banker to do two separate applications.

Check that your signing two loan contracts, with each loan contract ONLY having one security listed against it. Theres a section in the contract about security, read it clearly.

If your unsure, get your broker/banker to triple check it.

Which bank are you going to?

Cheers,
Redom
 
Great thanks all. Appreciate the help. So to clarify. If i go with the same bank i can get a separate split loan of 200k sonce 100k required to be kept for 80% lvr. Then i can use that 200k for a deposit for the new loan. As long as i check the security only has one property i should be fine?

Also i obtained a preapproved loan application but this was based on cross collat during our conversations. But it doesnt state that on the preapproval. Does this mean i can still make an offer on a property then tell the bank to not cross collateralize provided? Im just asking this as i am inspecting a property tomorow. Thanks all.
 
Great thanks all. Appreciate the help. So to clarify. If i go with the same bank i can get a separate split loan of 200k sonce 100k required to be kept for 80% lvr. Then i can use that 200k for a deposit for the new loan. As long as i check the security only has one property i should be fine?
That's essentially how it's done.

Also i obtained a preapproved loan application but this was based on cross collat during our conversations. But it doesnt state that on the preapproval. Does this mean i can still make an offer on a property then tell the bank to not cross collateralize provided? Im just asking this as i am inspecting a property tomorow. Thanks all.
Avoiding cross collateralisation requires two loan applications, not one. Your pre-approval application is still valid, but a second application will be required to do it properly.

Frankly though, I wouldn't deal with anyone who suggested crossing without a very good explanation as to why, they either don't really understand what they're doing, or they don't entirely have your best interests in mind. I'd use someone else to organise my lending.
 
You could probably ask not to have these cross collaterised but most lenders have an all monies clause anyway which generally gives them the ability to pull or retain funds from one property for the other in case of sale.

Ignoring the benefits of diversification of lenders and other benefits, the one thing using one lender may give you is the ability to obtain a volume rate discount. If you were only ever going to have a PPOR and one other property then it may suit as long as you are aware of the risks. Like many brokers, I have seen the issues and risks of clients just using one lender and hitting the proverbial borrowing wall, or stuck with higher interest rates or having funds retained by a lender on a sale of a property. These are not desirable outcomes.

For clients with many properties, it is often a case where you will have multiple properties with a lender, due to servicing, or LVR or location or a combination but not all properties. These are generally not cross collaterised. There are a lot of good brokers in Sydney who post to SS and well understand property investing finance. Get a good team behind you, you will benefit from it.
 
Top