is this cross collaterisation

Hi there,

Just trying to understand If I am doing the cross colltarisation here?

I've two properties and combined equity in both is enough for me to fund 20% deposit for another investment property.
My broker suggests that I create the new loan account of e.g 100K (50K equity drawn from each property). If I do that
on the loan papers it will say security of this 100K is for Property 1 & 2. Is this cross colltarisation?
OR
I was thinking setup seperate loan accounts for each equity release i.e. 50K (by releasing equity from property 1) & 50K (by releasing equity from property 2). In this method when future equity is availale I can draw down to respective loan accounts for each loans.

which is the appropiate recommended method.

thanks
 
Each loan that you have should only ever be secured by 1 property.

If you have a $100k loan secured by 2 properties it's crossed.

If you have $50k by 1 and $50k by another. Seperate loans they're not crossed.


From what you have said MB doing 1 loan x-col.

Your thought it correct, 2 seperate loans.
 
Why not do a Top Up of both loans, Ie Increase each loan to 80% and take the excess funds to use as deposit for IP3?
Loan Topup can be done via desktop valuation( no site visit required) with some lenders,and is relativity quick.
This doesn't take into consideration tax implications tho.
 
Hi there,

Just trying to understand If I am doing the cross colltarisation here?

I've two properties and combined equity in both is enough for me to fund 20% deposit for another investment property.
My broker suggests that I create the new loan account of e.g 100K (50K equity drawn from each property). If I do that
on the loan papers it will say security of this 100K is for Property 1 & 2. Is this cross colltarisation?
OR
I was thinking setup seperate loan accounts for each equity release i.e. 50K (by releasing equity from property 1) & 50K (by releasing equity from property 2). In this method when future equity is availale I can draw down to respective loan accounts for each loans.

which is the appropiate recommended method.

thanks

Sounds like x coll for the $100K equity pull and then proposed separate non xcoll loan for the new purchase. If it's just two properties sometimes xcoll can be forgivable at a stretch but never the ideal.
 
on the loan papers it will say security of this 100K is for Property 1 & 2. Is this cross colltarisation?

Yep it is.

OR
I was thinking setup seperate loan accounts for each equity release i.e. 50K (by releasing equity from property 1) & 50K (by releasing equity from property 2). In this method when future equity is availale I can draw down to respective loan accounts for each loans.

Seems like a much more reasonable approach than the first option - it avoids nasty cross coll.

Cheers

Jamie
 
Good thing you noticed this early, definitely x-coll.

Setup 2x 50k loans with only one security listed on each.

Quiz the broker as to why he was recommending the x-coll, might be worth giving them the flick if they can't see the long term issues with structuring in this way.
 
Good thing you noticed this early, definitely x-coll.

Setup 2x 50k loans with only one security listed on each.

Quiz the broker as to why he was recommending the x-coll, might be worth giving them the flick if they can't see the long term issues with structuring in this way.

My bet CBF spending more time on applications.
 
My bet CBF spending more time on applications.

I've found most clients I've picked up from other brokers who were dissatisfied with their service give that impression. Even if it takes all of ~30 minutes more work in most of these cases.

Service before self. :)
 
Why not do a Top Up of both loans, Ie Increase each loan to 80% and take the excess funds to use as deposit for IP3?
Loan Topup can be done via desktop valuation( no site visit required) with some lenders,and is relativity quick.
This doesn't take into consideration tax implications tho.

top ups are okish if the underlying base loan and the top up is for the same tax purpose.

BUT...... can get messy.

PPOR loan gets topped up for car loan.

PPOR later gets turned into IP................. one of many complications why separate splits can often be better though they can require more work

ta
rolf
 
I've found most clients I've picked up from other brokers who were dissatisfied with their service give that impression. Even if it takes all of ~30 minutes more work in most of these cases.

Service before self. :)

Doesn't even take that long in most cases.

Just banged out 90% equity release from 2 properties for purchase on another. So 3 apps total, extra time taken prob 10 minutes if that.

Agreed, even at 30minutes think of how much easier it's going to be when you help them with the next purchase. And you're more likely that they will return and no go elsewhere after finding out you x-coll without them knowing.
 
Agreed, even at 30minutes think of how much easier it's going to be when you help them with the next purchase. And you're more likely that they will return and no go elsewhere after finding out you x-coll without them knowing.

Absolutely - do it right the first time every time.

I think a lot of it comes down to banks/brokers just not understanding simple structuring too.

Had an enquiry today where the clients previous finance person simply increased their PPOR loan to fund IP purchases - no split, just a straight increase on a non deductible loan :eek:

Cheers

Jamie
 
Thanks everyone. I am glad I checked here.

I've existing separate loan which was setup to fund my IP1 purchase, i guess i can ask bank to top up this facility rather than setting up separate loan account. And for the other property I'll set up separate loan account.

So the tip is basically create separate loan account for each property and keep topping it up by releasing equity in them (Given all that money is used for investment purposes).

I've reviewed number of the forums here just to understand how to park equity release money (for tax deductibility) until making the IP purchase... there seems to be two separate opinions. Park it into the redraw of the loan when equity is released OR Park it into the brand new offset account attached to the new loan only.

which one is recommended by panel here,,,,or is there another method...
 
I usually get clients to park it in the redraw for future use.

some lenders you may need to leave a small amount owing otherwise they'll assume the account has been paid and will automatically close.

Cheers

Jamie
 
sorry guys, dun want to start a new thread since the title reflects my question...

My current scenario:

IP 1
Purchase price $500k, current value is $900k
Paid Principle and Interest for first few yrs.
Have $800k in equity.

IP 2 - Purchase price $750k
Loan 1 - $200k (Security is IP1)
Loan 2 - $570k (Security is IP2)

Are Loan 1 and Loan 2 cross collatoralized???



(Note there is alot of equity in IP1, as i previously paid P and I. And now have learnt me lesson, IO for life for IP's)

Many thanks,

k88k.
 
sorry guys, dun want to start a new thread since the title reflects my question...

My current scenario:

IP 1
Purchase price $500k, current value is $900k
Paid Principle and Interest for first few yrs.
Have $800k in equity.

IP 2 - Purchase price $750k
Loan 1 - $200k (Security is IP1)
Loan 2 - $570k (Security is IP2)

Are Loan 1 and Loan 2 cross collatoralized???



(Note there is alot of equity in IP1, as i previously paid P and I. And now have learnt me lesson, IO for life for IP's)

Many thanks,

k88k.

Shouldn't be if they're each only tied to a single security as you have described. :)
 
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