Cross-Collaterized - what next?

Hi all,

I was talking to my cousin about x-coll'ing

It appears he has the x-coll 2 IP's without even knowing a few years ago.

He wants to know if there's anyway to undo this or minimise the impact of x-coll'ing his IP. Or he has dug himself a hole?

Thanks guys.
 
Its relatively simple.......tell him to go see an IP savy mortgage broker. If you need one PM me and Ill pass on my national award winner broker details to you .
 
x-coll in itself is not a big problem.

It can be a good thing depending on the situation. Normally, x-coll get a bit more discounted interest rate hence give a bit more borrowing power.

What comes to the problem is when you do want/need to sell the property, you are really have less power than the bank/lender. They control your security and valuation on the property.

So say if two properties has strong cashflow and with intention to keep them for a long term, with x-coll it has not much problem compare to highly geared and poor cash flow with a lot riding on the simple market driven capital gain.

It all come down to strategy and how people use or don't use x-roll to get ahead of the game.

Having said a broker or just simply talk to the bank/lender it can be un-cross-collateral, providing LVR for both properties are within the lender's policy
 
Do they want to purchase additional IP's? If so - look at getting it untangled. If not - then probably just leave it.

Cheers

Jamie
 
I would say it is better to uncross now while you can. I am doing 2 client uncrossings now, one with 4 properties and 1 with five, including a fixed loan which is over 80% LVR - which makes it tricky.

I have heard of 2 stories where retirement plans have been absolutely ruined because of crossing.
 
I've been told the LVR is about 68% at the moment

It should be no trouble to untangle this at all, and I would suggest getting it done as soon as practical. As Terry said, the implications can be devastating in some cases so it's worth doing while you can.
 
Thanks for the tips guys.

Smells like NAB ...................

You are right sir. He is with NAB.

It should be no trouble to untangle this at all, and I would suggest getting it done as soon as practical. As Terry said, the implications can be devastating in some cases so it's worth doing while you can.

So what are the specific actions and expenses involved in the process of untangling x-coll loans?

Should he be refinancing out to another bank?

Why is it critical to take action now as opposed to taking action in a year or two into the future, even though he does not plan to use any of equity between now and two years time?

My cousin has been pretty comfortable with where he is now and is planning to hold on to them for many years to come as he may want to turn one of the IP into PPOR.
 
Thanks for the tips guys.



You are right sir. He is with NAB.



So what are the specific actions and expenses involved in the process of untangling x-coll loans?

Should he be refinancing out to another bank?

Why is it critical to take action now as opposed to taking action in a year or two into the future, even though he does not plan to use any of equity between now and two years time?

My cousin has been pretty comfortable with where he is now and is planning to hold on to them for many years to come as he may want to turn one of the IP into PPOR.

It depends on the properties and how they're structured. If they're all on one loan it's different than if they both have similar LVR's but 2 loans, and different again if one if high LVR and one is low.

It's not about getting out equity, it's about being able to sell when you want to. Even if that's not for ages, if he leaves it and buys another IP with NAB, or even just gets more equity out, it just gets messier and can get to a point where it can be very expensive and difficult.

My suggestion is do it now while it's easy. It's not necessary to go to a different bank, he can stay with NAB if he chooses.
 
It depends on the properties and how they're structured. If they're all on one loan it's different than if they both have similar LVR's but 2 loans, and different again if one if high LVR and one is low.

It's not about getting out equity, it's about being able to sell when you want to. Even if that's not for ages, if he leaves it and buys another IP with NAB, or even just gets more equity out, it just gets messier and can get to a point where it can be very expensive and difficult.

My suggestion is do it now while it's easy. It's not necessary to go to a different bank, he can stay with NAB if he chooses.

Thanks again Jess. Me and my cousin really appreciate your help on this.

Currently his has 2 loans:

400k - 56% LVR
500k - 77% LVR

Correct me if I'm wrong, it doesn't matter whether he does it tomorrow, next week, a month or 1 year later. Just so as long he uncrosses the loans before his next property purchase or property sale or equity release?

And by uncrossing them and also choosing stay with the same bank, does it mean the 2 mortgages needs to be discharged and re-registered? If so, the expense here would be the mortgage registration($214 - $104.50 per registration) and discharge fee ($214 - $104.50 per registration)?
 
If he stays with nab there is no need to discharge mortgages.

Based on those lvrs, it should be very simple - just releasing a security on each loan.

The risk with waiting is that property values decrease or you get a bad val. This could put you in lmi territory on at least one property. If that happens it gets more expensive and (slightly) more complicated.
 
The process should be simple. Just ring the bank and ask for a substitution of security. If the existing valuations are less than 12 months old it may be done without a val, if more than a valuation will probably be needed.

You could do it later, but better to do it now. Imagine if your cousin lost his job and needed to sell a property as he couldn't afford the repayments. The bank would keep all the proceeds and pay down the remaining loan.
 
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