Cross collateralization

[RH PROPERTY INV]

Hi there,

In last 18 months I both two investment properties worth 1 million on 95% loan but later I figured out the second purchase was cross collateralized with first.
What to do?
Should I change it? Which is not easy as I paid LMI on it.
Any suggestions from experienced investors

 

[b simpson]

Sorry to hijack your thread but I have a related question.

When setting up a loan to ensure it isn't cross collatterized do you just mention this to a bank and they are normally happy to comply?

It seems the default attitude with banks is to cross collaterize loans. Is it difficult to get them to make them stand alone?

 

[Peter_Tersteeg]

It seems the default attitude with banks is to cross collaterize loans. Is it difficult to get them to make them stand alone?

Many banks x-col as a matter of policy. They can avoid it, but it gives them a lot of control and thus advantage over the borrower if they can do it.

Even when LMI is involved it is possible to remove x-coll if it's only a couple of properties. At 95% it could be very challenging however as most banks won't refinance over 90%.

 

[Rolf Latham]

that broker or banker has likely not done u any favours

The lmi premium would have been wow high and likely avoidably so .

I'm making some assumptions but it's rare that you'd need to xcoll

We have just recently sorted out similar but much more crossed scenarios for quite a few clients because their existing equity was sterilised.

You might not have a heap of that at that at the moment, but I'd suggest you put in place a strategy to remove one of the props from the other security as soon as practically possible

Ta

Rolf

 

[RH PROPERTY INV]

Thanks Peter n Rolf.


Hey Rolf I would be happy to take my property out of it but it will attract another LMI which is quite Hugh from memory.

 

[Peter_Tersteeg]

X-coll with LMI is doubly bad, because there is pricing tiers with LMI. By x-coll two properties you're likely increased the pricing tier on both, whilst had they been separate, you would have likely paid far less LMI.

It may be possible to remove the x-coll within the same lender without incurring further LMI, but this would be the best result you could hope for.

 

[Rolf Latham]

I have recently had worse scenarios on my table

multiple property xcoll, moderate equity AND 5 years fixed rate

Talk about locking down a borrower : (

ta


rolf

 

[Terry_w]

Hi there,

In last 18 months I both two investment properties worth 1 million on 95% loan but later I figured out the second purchase was cross collateralized with first.
What to do?
Should I change it? Which is not easy as I paid LMI on it.
Any suggestions from experienced investors

It might be better to just wait until some equity builds up.

Could you give us rough estimates of values and loans?

 

[RH PROPERTY INV]

Thanks for asking Terry

Yes I am for bit of equity growth before doing a change rather then paying LMI again on both

Prop 1 settled in dec 2012 bought at 377 k with loan of 325k with LMI

Prop 2 settled in sep 2013 bought at 550k with loan of 571k which includes LMI

Cheers

RH

 

[Rolf Latham]

what city pls ?

ta
rolf

 

[RH PROPERTY INV]

It's Brisbane. Rolf,


Cheers

RH