Partial X Collaterisation

[yadeh]

Hi all

My current lender was ready to lend me money for buying the second IP just by X collaterising against my PPOR and my IP. Since this type of loan is warned against in this forum by most people, I tried to find another lender. However, becuase I had to pay a break up fee and the rate with the current lender is very good, I have decided to stay with them. Now, they are raedy to give me a top up loan (20% of purchase price and costs of the new IP) by X collaterising against the two existing properties and a new stand alone home loan (80% of teh purchase price of the new IP). Do you think if this is a better option as only 20% of the loan is X collaterised rather than x Collaterising whole the loan? Or it does not make a difference? Thanks for any comment and advice.
Yadeh

 

[WillG]

Hi all

My current lender was ready to lend me money for buying the second IP just by X collaterising against my PPOR and my IP. Since this type of loan is warned against in this forum by most people, I tried to find another lender. However, becuase I had to pay a break up fee and the rate with the current lender is very good, I have decided to stay with them. Now, they are raedy to give me a top up loan (20% of purchase price and costs of the new IP) by X collaterising against the two existing properties and a new stand alone home loan (80% of teh purchase price of the new IP). Do you think if this is a better option as only 20% of the loan is X collaterised rather than x Collaterising whole the loan? Or it does not make a difference? Thanks for any comment and advice.
Yadeh

I am not a qualified mortgage broker or finance expert but 20% or 100% X collaterised is still 'X collaterised' and may tie up future equity. I would attempt to go 0% collateralised if you can. Remember that 'break up' fees can be capitalised and are fully deductable. I have just gone through this process and are set for further investing with complete control of my equity.

Cheers

 

[Les]

G'day Yadeh,

If I'm reading your words correctly, it "sounds" like they are prepared to go with the current X-coll (your PPOR and 1st IP), but allowing the new IP purchase to "stand alone".

If this is correct, then it's not so bad... True, your PPOR and 1st IP remain "crossed", but you're still growing without increasing the "x-coll web" !!! The second IP seems to be NOT included in the X-coll - so that's a big offer on their part - BUT........

I reckon I'd suggest a Solicitor get a good look at the documents before signing them though (or a good Mortgage Broker, if you prefer) just so that you can be sure of the new reality!!

Regards,

 

[Rixter]

Hi all

My current lender was ready to lend me money for buying the second IP just by X collaterising against my PPOR and my IP. Since this type of loan is warned against in this forum by most people, I tried to find another lender. However, becuase I had to pay a break up fee and the rate with the current lender is very good, I have decided to stay with them. Now, they are raedy to give me a top up loan (20% of purchase price and costs of the new IP) by X collaterising against the two existing properties and a new stand alone home loan (80% of teh purchase price of the new IP). Do you think if this is a better option as only 20% of the loan is X collaterised rather than x Collaterising whole the loan? Or it does not make a difference? Thanks for any comment and advice.
Yadeh

Am I correct in assuming your bank is partially x-colling with the top up loan because you dont have enough equity alone in either your PPOR or your IP1 - you need both together?? If this is correct I cant see many other options apart from holding off until you have the required equity available in one property alone or the other.

If you do have enough equity in one of your existing properties tell the bank you dont want the other x-colled when there is no need to.

Alternatively if your relatively new I'd seriously advise seeking the services of a professional in this area.

P.S we have a couple of very good resident ones here on SS

Cheers

 

[Mr. Fabulous]

It honestly never ceases to amaze me why people still continue to try and get loans on their own! Seriously! Why do people do this? I wouldn't even consider getting a loan without the help of a fantastic mortgage broker (or brokers, depending on which city I'm looking to purchase).

Just like I wouldn't consider tax issues without the advice of my very excellent accountant or financial advice without the help of my very excellent financial advice team (my 'team' being the people I work with - yes! I work as a paraplanner and I STILL don't do anything investment related without getting advice from the people I trust) or legal advice without the help of my future solicitor (haven't needed a solicitor up to this point). To top it off, mortgage brokers don't cost you anything! You don't even pay for their services! What's the excuse for not using one then?

Nothing against you Yadeh, just a little perplexed by the number of 'what do I do about my loans' posts lately.

*walks away scratching head*

Suppose I'll end this post a little more constructively.... my advice to you yadeh is - get a mortgage broker. There are several excellent people on this forum, use one of them!

Mark

 

[Kristine..]

Mark

When I was a little kid, and watched my mum doing all the work around the house herself, I was always puzzled with the American Sit-Coms where they always - always - had a Mrs Mop or a live-in housekeeper (usually in uniform, too!).

So did the British - nannies, cleaners, chimney sweeps, even God bless us, clock winders!

So how come us Little Aussie Battlers are a nation of do-it-yourselfers? I think that deep in the psyche we are ashamed to ask for any help, we figure if we don't know, then nobody else does, either, and if we pay for help then there will always be someone who says 'Why didn't you tell me you were going to buy a new fridge??? My Uncle works at Dodgy Bros MegaMart - he could have got it for you a lot cheaper!' We feel that if we pay for anything we are just mugs.

So we don't ask, except perhaps on the Forum where we are anonymous.

Yadeh may have organised the Deal of the Century, and as you have mentioned, mortgage brokers are (mostly) free to the customer, but before I became a mortgage broker the broker I used did charge me, and wow! did he do a great job! He got me money where none had existed before, and the fee he charged me was in the hundreds, not thousands, of dollars, so no big deal, really.

Perhaps Yadeh feels that if he/she contacts Rolf or Steve or Simon etc and 'takes up their time' they would be cross or dissapointed if Yadeh did not then lodge an application through them.

Well, we are all big kids. Everyone who is in business - butcher, baker, candle stick maker, hangs out their shingle and provides a service for the customer. If the customer then takes their car to the other mechanic or their dry cleaning to the other store or doesn't buy any cakes after all, well, that's what business is about. But perhaps the next time the customer wants new curtains or to renew their insurance or to organise a loan, well, maybe they will think of us. And maybe, not.

But, Mark, we all come to these things when we are ready. Yadeh wants to do things him/herself, and there's no harm in that. Not everybody wants to do a crash course in Mortgage Lending 1:01 (I have a number of customers who wish they'd never asked!) and a lot of people feel they haven't learned anything unless they do it the hard way.

We all tread the road less travelled and we all must do it our own way.

Good luck with your search, Yadeh, no doubt you are learning much along the way, and the journey is what it is all about.

Regards

Kristine

 

[Rolf Latham]

Hiya

All is well................ exit costs, hmmmmmmmmm sounds like a Resi, Rams or An ME or another one of them type lenders.

The real cost is hard to quantify, since anyone can count the seeds in the apple, but not the apples that come out of the seed,

I have seen many people lose big opportunities, and one that lost his whole portfolio, simply because they did not take basic heed.

Unfortunately its like a dad trying to tell his teenager to drive carefully, ........................................yeah right dad, I'll be fine.


ta

rolf

 

[Les]

G'day Yadeh,

Jeez, you've gotta LOVE the forum, don't you? Here and now, I reckon I might've misread your post - I answered as though you were ALREADY X-colled with PPOR and 1st IP, and were simply increasing an ALREADY EXISTING X-coll - then up pops Rixter, and he's read your post differently (and, on a reread, I reckon he's on the money - I doffs me lid to you, Rix !!!)

So, Yadeh, is Rix correct? Are you NOT currently X-colled already with PPOR and 1st IP? But are ABOUT to X-coll to purchase IP #2?

If this X-coll already exists, then I'll stick to my original reply (i.e. you're no worse off, and you then have an IP in "standalone" mode). But, if Rix is right, then you might be about to INTRODUCE X-coll to get the deal....

Well, if Rix has it sussed, I'd be seeking out some professional input. Hey, this might be just "THE BEST deal" and is worth the pain of an X-coll - but, then again, it may not..... Do you have a friendly MB on your books?

Interested in your response,

Regards,

 

[Spectre]

Yadeh

While I can agree with the above and x-coll debate... to some extent, I think that issue is somewhat 'secondary' (if that is the right word), and you have to look why you are buying IP#2 in the first place. Is it so you can restructure so you dont xcoll or is it so you can get the next property? By that I mean what is your aim to invest... in my view its done so you are better off down the line financially or for some tax reason. While XColl may play a role in this I dont see it as the primary reason.

From what it sounds like they'll give you 30% for the deposit on the property and legals etc a second loan for 80% which will be secured against the new one on its own. If thats the case you may just be able to take the deposit portion upfront then look around for another deal on the new purchase.

At the same time, you might get a better deal elsewhere than your present financier is able to provide, and then you might be able to use the equity in your properties and get your bank to consent to a second mortgage. but by doing this you are really doubling your xcoll as you dont just have one bank to deal with you have 2.

End of the day, you have a ton of options... you can xcoll and do 1 loan borrowing 110%, you can do a 30/80 split up, you can borrow 5% and then go to mortgage insurance on the purchase...

My personal thinking is that you should get someone who knows what they are doing to have a look at it, whether they be a broker or banker, and never deal with the kid at the bank who just got put in to being a home loan guy two weeks ago (unless they got recruited from somewhere else then maybe they have a chance of being halfway good). The reality of it is that banks dont seem to have great training for newbies and when you are dealing with lots of money and investments its not a risk that I'm prepared to take by letting the new kid run with it, due to lack of experience. While I know everyone has to start somewhere I dont think it will be with my money or my future.

 

[Rolf Schaefer]

Unfortunately (IMHO) there is no such thing like a "partial x-collateralisation".

In Yadehs case the properties are x-coll and will stay x-coll; even worse, he'll soon have 3 properties x-coll which makes it very hard and expensive in the future to brake it up later should the need arise (think about equity access when you have run out of serviceability with that lender).

Just my 5 cents.

 

[yadeh]

Guys, Thank you all for the comments.


WillG, Thanks for the advice.

Les and Rixter

My PPRO is secured with the IP (I got IP first) and i still have 110 K in equity.

Mark and lukentel

You are right. I suppose I can not do this by myself and I should get help. It is just a matter of trust, and also a very competetive rate with the current lender.

Kristine,

Thank you for a thorough advice. I suppose one of the uses of this forum is that we do not need to go all the way to learn want the people on this forum already know. So, I will take the advice on getting professional help!


What I gather from all of these commenets in general is:

X Collateralisation is not a good idea, and
I should use a mortage broker, instead of going to the bank myself.
Thanks guys

Yadeh