The cross collateralisation thing has nothing to do with the tax structure of it. It's about setting up how the securities are held by the bank. All I'll say is the way you are doing it is a terrible way of doing it and is not in your best interests. You can ask the CBA banker to uncross it but he'll probably tell you that it's no big deal and not to bother.
"No Valuation will be required." Does this mean...?
- Thread starter fullylucky
- Start date
The cross collateralisation thing has nothing to do with the tax structure of it. It's about setting up how the securities are held by the bank. All I'll say is the way you are doing it is a terrible way of doing it and is not in your best interests. You can ask the CBA banker to uncross it but he'll probably tell you that it's no big deal and not to bother.
Nothing has been done yet... Now is my chance to change it how i like.
I understand tax has nothing to do with security.
can you have a go at explaining it in a nut shell?
What's the benifit of not crossed compared with crossed.
Well Shahin and Rolf kinda summed it up pretty succinctly in their responses.
In a nutshell (from my viewpoint), crossing your securities opens you up to valuation risk, giving too much equity to the lender (for no benefit to you) and allowing the bank to control your entire portfolio which can restrict you in the future. I never cross clients' securities unless it is absolutely necessary, which most of the time, it isn't. Crossing securities is for lazy brokers/bankers because they don't want to do 2 different applications at once - they would rather do it all together.
LMI is Lenders Mortgage Insurance. Usually when you borrow more than 80% of the value of a property (assuming the loan is secured solely against the property), banks require you to pay insurance. The fact that you are borrowing more than 80% (600k / 715k) but you haven't mentioned LMI (which would be in the thousands if not more than 10k for that size loan - and you twitching at $110 title searches) suggests that the bank hasn't mentioned LMI. The only reason they wouldn't ask for LMI is if your overall LVR is <80%. Only way that would happen is if you're cross-colling.
I don't know what AMP is. The insurance company?
Ok I get it.
So basically, I'm using up too much equity when I can use the equity later down the road to buy more stuff? yeah?
I think I'm not going to be too fussed. Coz I won't be buying another house ever after this one!
So is it correct in saying assuming I never buy another house or sell my current house corss security / collateral doesn't affect me?
Well, you say that now. It is your money after all but I just don't think it's a wise decision and I certainly wouldn't recommend it. But each to their own.
Yes, when I got my first house 3 years ago, I didn't have to pay LMI, coz I saved up the 20% deposit. I think LMI is just a waste of money. I would advise anyone who is buying a house to save up the 20% and not pay LMI.
But this time with the IP, the CBA banker said something along the lines of: this time don't need 20% deposit just overall 10% something something. ??
I think I'm cross colling too. I'm not going to pay LMI.
To be honest, you don't have the knowledge to deal with the CBA banker, since you don't actually know what you want. I doubt you'll learn it all in one night. They're going to stitch you with because they know more than you do.
The long settlement works for you here. You have lots of time to get proper finance before settlement. Letting the finance and building and inspection clauses lapse means you go unconditional, but you have equity in your first place. One option might be to forget the CBA guy, call a broker tomorrow (not someone who works for a specific bank) and get them to set things up for you properly.
See, THIS is the important stuff. Focus too much on the pennies and you get killed for the pounds.
You're not exactly the best judge of what's a waste of money or not when it comes to property. If you don't see this by now..... put down your blinkers for one moment and at least approach this with an open mind.
But you didn't understand what he said, or didn't understand what it means to cross col.
I approch everything with an open mind. I listen and consider everyone's ideas and think about it and then make a decision. I read and listen to everything and make my mind up about accepting or rejecting advise/info.
I'm so open minded that if someone told me they saw a purple alien i wouldn't say they are wrong i would ask them about it and ask them to show me
This stuff is new to me so I'm still learning.
OK I think Cross Col is:
When you add up all your securities against a loan.
Not cross collateralization is when you have separate securities against different loans. So if I decide to sell a house; other loans would be affected because their security hasn't changed.
if it's cross collateralized changing security (selling a house) makes the bank do recalculations which they don't like to do and want to charge a fee for doing it.
It's not the fee that's the issue. They can control where all the money goes.
You're saying because I have everything tied up with CBA it gives me less power to switch less "liquidity" = reduced competitiveness = higher rates...?
nevermind i just read this:
http://somersoft.com/forums/showpost.php?p=120656&postcount=6
You're saying because I have everything tied up with CBA it gives me less power to switch less "liquidity" = reduced competitiveness = higher rates...?
nevermind i just read this:
http://somersoft.com/forums/showpost.php?p=120656&postcount=6
More that say one day you decide to sell one of your properties to go towards your retirement and come out 100k ahead, the bank may instead insist you use these funds to clear another CBA debt etc, when you really wanted to buy a reliable car and go on a small holiday, or renovate your property.
I'll throw my 2 cents in
Because I had to cross coll but will be uncrossing as soon as I can.
You have house A and you want to buy House B.
The bank want to put an unknown amount of security against House A to reduce their risk of losing money on House B if you run off to Bahamas.
If you run off to Bahamas they can sell both houses and recoup their money no worries.
If you choose to sell House A then they will decide how much of the 'profit' you get to keep. You might think you get everything but the $200k but what they will do is say 'you are taking away our security for House B we will take the money from House A and put it on House B until it's below the Loan to Value Ratio that we want' They will value House B at this time and if it has gone down in value (it can happen) then more of House A will be used.
If you decided to buy House C (I know you said you don't want to) but then you might end up with all 3 tied together in a tangled web.
The solution is pretty easy and quite neat. You take a Line of Credit or Loan against House A for the amount you need to deposit on House B (20% if you don't want to pay LMI).
Then you if you sell House A you pay out the original mortgage plus the deposit Loan and walk away from House A without the bank even looking sideways at House B
Because I had to cross coll but will be uncrossing as soon as I can.
You have house A and you want to buy House B.
The bank want to put an unknown amount of security against House A to reduce their risk of losing money on House B if you run off to Bahamas.
If you run off to Bahamas they can sell both houses and recoup their money no worries.
If you choose to sell House A then they will decide how much of the 'profit' you get to keep. You might think you get everything but the $200k but what they will do is say 'you are taking away our security for House B we will take the money from House A and put it on House B until it's below the Loan to Value Ratio that we want' They will value House B at this time and if it has gone down in value (it can happen) then more of House A will be used.
If you decided to buy House C (I know you said you don't want to) but then you might end up with all 3 tied together in a tangled web.
The solution is pretty easy and quite neat. You take a Line of Credit or Loan against House A for the amount you need to deposit on House B (20% if you don't want to pay LMI).
Then you if you sell House A you pay out the original mortgage plus the deposit Loan and walk away from House A without the bank even looking sideways at House B
As an "obviously"irrelevant tangentor 3
Have you run your "tax" side of this past your accountant ?
I think you are going to get a smack on the wrist for messing up the simple deductability of the 100 k redraw.
Can I guess not, because etax doesnt provide such advice ?
While the 100 k is a new borrowing and is deductible, Id guess your HOME loan is PI, thus any repayment you make will need tobe apportioned.
If you are going to "the dark side"and using xcoll, at least structure it so you borrow 105 % of the IP price as a single loan and simply reduce your home loan limit by 100 k.
Please note, unlike your Mobile Banker, Im not providing tax advice, merely suggesting you seek same.
A further tangent
Have you taken house insurance, since you have an insurable interest, and if the place burns down and the vendor doesnt have cover your investing career may be stopped for a loooooooooooooong time.
And more
As an interstate buyer, have you done your own independent valuation as often recommended, not so much to eliminate that you are paying to much, but to minimise risks which may be not apparent to you.
And
Have you done the various searches to make sure there isnt a new motorway or McDonalds planned for your new neighbour.
And
Have you done a sales history check to maybe ascertain why the property has sold 6 times in 10 years "
And
You state, you aren"t using a broker. Was that simply a statement of fact, or were you making your preference known ?
And finally for this round
How did the P&B come back ?
ta
rolf
Have you run your "tax" side of this past your accountant ?
I think you are going to get a smack on the wrist for messing up the simple deductability of the 100 k redraw.
Can I guess not, because etax doesnt provide such advice ?
While the 100 k is a new borrowing and is deductible, Id guess your HOME loan is PI, thus any repayment you make will need tobe apportioned.
If you are going to "the dark side"and using xcoll, at least structure it so you borrow 105 % of the IP price as a single loan and simply reduce your home loan limit by 100 k.
Please note, unlike your Mobile Banker, Im not providing tax advice, merely suggesting you seek same.
A further tangent
Have you taken house insurance, since you have an insurable interest, and if the place burns down and the vendor doesnt have cover your investing career may be stopped for a loooooooooooooong time.
And more
As an interstate buyer, have you done your own independent valuation as often recommended, not so much to eliminate that you are paying to much, but to minimise risks which may be not apparent to you.
And
Have you done the various searches to make sure there isnt a new motorway or McDonalds planned for your new neighbour.
And
Have you done a sales history check to maybe ascertain why the property has sold 6 times in 10 years "
And
You state, you aren"t using a broker. Was that simply a statement of fact, or were you making your preference known ?
And finally for this round
How did the P&B come back ?
ta
rolf
Print out what I wrote and take this to your CBA MB and tell him/her to re-structure and set the loans up this way. This clean and it benefits you not the bank.
Once the loan has settled I suggest you find another banker or broker who is not going to simply cross securitise you because it benefits them or because they are lazy.
Regards
Shahin
Once the loan has settled I suggest you find another banker or broker who is not going to simply cross securitise you because it benefits them or because they are lazy.
Regards
Shahin
Congrats on taking the step forward.
Needless to say, your on a forum with INCREDIBLY knowledgeable investors some who have accumulated $millions in personal property and the experience to back it.
It is obvious you came seeking advice which is a very smart move by you, perhaps leave the opinions aside and read between the lines, they are giving you priceless advice.
*FYI, IMO, LMI is great, when you know what it let's you do. I bought my first 2 properties without it at 80% LVR, and still regret it to this day.
FL aint going to be needing the services of any lenders again soon.
I think most bankers/brokers that dont structure stuff the "right way" arent lazy, or even thinking that they structure to benefit them or the employer. They often dont "think"............ They react.
Most of the time it comes down to"they just dont know".
There is a huge knowledge gap in our industry with the vast majority of folks dealing in loans having only "first tier" knowledge or care, which in reality is why most struggle to survive.
When you play in the "first tier" pond > 80 % of bankers and brokers et al struggle to fight for 20 % of the available business.
ta
rolf
Their market proposition
"Anyone" is a broad statement....................... perhaps you could qualify what benefit one has by "saving up" to avoid LMI
Again as an aside, LMI, properly used and structured can and often is a TREMENDOUS risk management tool for the investor.
Do you have car insurance ?
Do you have Appropriate Income Protection and allied personal insurance
ta
rolf
I'll throw my 2 cents in
Because I had to cross coll but will be uncrossing as soon as I can.
You have house A and you want to buy House B.
The bank want to put an unknown amount of security against House A to reduce their risk of losing money on House B if you run off to Bahamas.
If you run off to Bahamas they can sell both houses and recoup their money no worries.
If you choose to sell House A then they will decide how much of the 'profit' you get to keep. You might think you get everything but the $200k but what they will do is say 'you are taking away our security for House B we will take the money from House A and put it on House B until it's below the Loan to Value Ratio that we want' They will value House B at this time and if it has gone down in value (it can happen) then more of House A will be used.
If you decided to buy House C (I know you said you don't want to) but then you might end up with all 3 tied together in a tangled web.
The solution is pretty easy and quite neat. You take a Line of Credit or Loan against House A for the amount you need to deposit on House B (20% if you don't want to pay LMI).
Then you if you sell House A you pay out the original mortgage plus the deposit Loan and walk away from House A without the bank even looking sideways at House B
Thanks for explaining that. You rock!
