X-coll and strategy

K

k88k

Hi Guys,

I just want some re-assurance that my current setup has not been cross collatorised, please refer below and confirm.

IP1 (current value $750,000)
Purchase: $530,000
Debt: $145,000
Offset: $145,000

IP2 (current value $750,000)
Purchase: $746,000 (bought last month)

To fund this purchase of IP2:
LoanA $210,000 (Equity from IP1, security is IP1 as noted in loan statement)
LoanB $576,000 (80% Value of IP2)

(LoanA has been used to pay for IP2 legal fees, stamp duty, depreciation report, BandP report, etc)

Apologies if i have got the terminologies incorrect.

1. Has my IP's been x-coll?:confused:

2. Is it possible to purchase another property? Or do i need to build up my equity first?

3. I just did a search on this forum and some one had a similar setup to the above, but some ppl on here mentioned there is not enough information to verify the set up has been crossed. Can you please some one please advise what info you need to verify there is no x-coll?



Many thanks,
k88k
 
Last edited:
k88k said:
1. Has my IP's been x-coll?:confused:
Click to expand...

The loan document you signed will definitely state it. Check what is the security for your loan. My humble opinion is that you should understand the document you signed for IP1 before thinking of buying IP2. (I didn't and went through lots of trouble to correct the mistakes)
 
Singo said:
The loan document you signed will definitely state it. Check what is the security for your loan. My humble opinion is that you should understand the document you signed for IP1 before thinking of buying IP2. (I didn't and went through lots of trouble to correct the mistakes)
Click to expand...

I believed at the time it was correct, but somehow after reading many posts above cross coll, it got me thinking/doubts i have.

LoanA - Security is registered mortgage over IP1

LoanB - Security is registered mortgage over IP2

Regards,
k88k
 
No. If nothing was changed then you would not be issued with new contracts.

Looks fine to me but if you're still concerned the only place to answer your question with 100% certainty to to call your bank and ask which loans hold which security/ies.
 
Kesse said:
No. If nothing was changed then you would not be issued with new contracts.

Looks fine to me but if you're still concerned the only place to answer your question with 100% certainty to to call your bank and ask which loans hold which security/ies.
Click to expand...

Thank you for your quick response Kesse!
 
k88k said:
This is what is states:


LoanA - Security is registered mortgage over IP1

LoanB - Security is registered mortgage over IP2
Click to expand...

Cross coll is using more than 1 security for a loan.
If the above is correct then the loans are not cross colleralised.
 
k88k said:
1. Has my IP's been x-coll?:confused:

2. Is it possible to purchase another property? Or do i need to build up my equity first?

3. I just did a search on this forum and some one had a similar setup to the above, but some ppl on here mentioned there is not enough information to verify the set up has been crossed. Can you please some one please advise what info you need to verify there is no x-coll?
Click to expand...

Hiya

1. Doesn't look like it.

2. Seems like you have plenty of equity still in IP 1 you could access. So another purchase seems possible depending on your borrowing capacity.

3. Need to check your loan docs and see which securities have been used for each loan.

Cheers

Jamie
 
Hey k88k,

Taking it up a step, crossing just means you've used multiple securities to act as collateral for the one loan. In your case, if you had crossed your loans than you'd have used both of your investment properties as security for the purchase of your second IP.

Going by your definitions, it seems like you've done it all without crossing.

By taking out a separate loan against IP1 (to fund the deposit for IP2), you have separated your two investment property loans to be independent of each other, rather than interdependent. This gives you greater flexibility and control over your portfolio. It mainly helps you avoid pitfalls that you may have experienced down the track.

In regards to your next question - you've got plenty of equity available for you to go again - it will depend on your borrowing power and purchase price though.

Just curious, did you go through a bank or a broker? Given that crossing benefits the banks, its more likely that someone working at a bank writing a loan would set up your loan structure this way. The way brokers are incentivised, there's little to no value in setting up a loan structure with unnecessary security (some could poke theoretical holes at this, but practically, I don't see how brokers can see much value).

This is a generalisation of course, i'm sure plenty of brokers would do it unnecessarily and of course and many good bank operators wouldn't. I've just found that in the cases I've cleaned up, its been bank originated loans.

The only cases I can see where i'd see value in cross securitising is: 1) If there's no time to set up the loan split and they haven't got the time to set up a separate loan and 2) If a guarantee is required from a third party (parental guarantee usually).

Cheers,
Redom
 
Redom said:
Hey k88k,

Just curious, did you go through a bank or a broker? Given that crossing benefits the banks, its more likely that someone working at a bank writing a loan would set up your loan structure this way. The way brokers are incentivised, there's little to no value in setting up a loan structure with unnecessary security (some could poke theoretical holes at this, but practically, I don't see how brokers can see much value).


Cheers,
Redom
Click to expand...


Ur assumptions are correct, i went via a broker that worked for a bank.

Luckily she set up my loans correctly (not x-coll)

In the near future, the next broker will definitely be in this forum!!!
 
Redom said:
This is a generalisation of course, i'm sure plenty of brokers would do it unnecessarily and of course and many good bank operators wouldn't. I've just found that in the cases I've cleaned up, its been bank originated loans.

The only cases I can see where i'd see value in cross securitising is: 1) If there's no time to set up the loan split and they haven't got the time to set up a separate loan and 2) If a guarantee is required from a third party (parental guarantee usually).

Cheers,
Redom
Click to expand...

I've mentioned this on the forum in discussion previously, you would find people switching channels and sourcing finance through different people because they haven't been satisfied with the service provided, a lot of the time they didn't know there was a disservice until after the fact ie x-coll. If the service was good likely you would never see the client infront of you. I often see loans x-coll and majority are from brokers, why am I seeing them... Because they're not happy with the service they provided.

My generalisation is that most of those who go through the time with clients discussing the benefits of not x-coll and explaining the benefits and potential dangers are usually going to continue to good service and not give them a reason to leave. Those that don't bother going through will likely loose the customer (in fact sounds like the OP banker did not x-coll and still OP is going to go elsewhere, as obviously wasn't explained well enough, so a service breakdown)

k88k said:
Ur assumptions are correct, i went via a broker that worked for a bank.

Luckily she set up my loans correctly (not x-coll)

In the near future, the next broker will definitely be in this forum!!!
Click to expand...

Broker are paid by the banks, they don't work for the banks.

Sounds like you used a banker direct.

Was it lucky? Did she discuss it with you?

Setting up a loan without x-coll isn't luck, involves more work. Worthwhile, but don't believe had anything to do with luck.
 
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