Cross-collateralization

[Colin Rice]

Or to quote my old Japanese teacher - kiku no wa ittoki no haji, kikanu no wa isho no haji - ask now and be embarrased once, don't ask and be embarrased for life.

You speak Japanese as well. Anything you cant do?

 

[Jaz]

Hi All,

I've read a few times that you should only need to save for a deposit once. After that, capital growth and your equity allows you to purchase more property. However, doesn't this mean you're cross collateralised i.e using IP1 to purchase IP2?

Cheers,

Jaz

 

[Rolf Latham]

Hi All,

I've read a few times that you should only need to save for a deposit once. After that, capital growth and your equity allows you to purchase more property. However, doesn't this mean you're cross collateralised i.e using IP1 to purchase IP2?

nope, only if you let it happen

You can structure loans so that you can eliminate this risk

ta
rlf

 

[Colin Rice]

Cross coll = 2 or more properties on one loan contract. All properties are linked to one and other. Whatever you do with one involves the other.

Stand alone = each property has its own loan contract and is therefore treated as a seperate entity.

 

[geoffw]

This is probably a stupid question, but what it you go 50-50 in a property with someone else and they are planning to X-coll with their PPOR? We have the cash but I am not sure it they do, but then again they must have some equity otherwise the bank would not offer x-coll. They may just be trying to avoid LMI when drawing out equity.

Apart from the x-coll question you may also be limiting yourself in other ways by joint borrowing. You are "jointly and severally liable" for the loan. As Terry says, if the other person doesn't pay, the bank can come after you. But even if all payments are kept up, you are assessed by the banks as having a loan for the full amount, not just half of it. This is because you may have to pay for all of it. This can limit your borrowing capacity down the track.

 

[Rolf Latham]

As Terry says, if the other person doesn't pay, the bank can come after you.

make the "can" will

its unusual that a lender would not enforce a guarantee.

ta
rolf