Sigh, everyone.
Here's some questions that are currently being debated and I have read through nearly all the Cross Collateralisation threads (XColl) that I could find.
Can I state the positions as I see it:
Simon thinks they are not necessarily terrible for all scenarios, but would avoid it if possible
Rolf L - thinks they are terrible, avoid at all costs
Mr Ed - thinks you should rather gnaw off your own arm than XColl.
Rolf S - thinks they are bad - don't do it
Banks want to do it because they want your continuing trail and it makes it hard for you to jump to new lenders etc, and they love security - way more than they need.
OK. Here's some questions:
Currently:
2 homes with Bank A - cross collateralised.
Loan 1 - PPOR
Loan 2 - IP1
PPOR has plenty of equity.
IP 1 has enough equity to stand on it's own feet with it's own non XColl loan.
Line of credit established, with security against PPOR AND IP.
HDT set up. Want to move forward.
Moving Forward:
UN XCOLL
If we were to UN XColl all loans, then scenario would look like:
Bank A
Loan 1 & LOC
Secured against PPOR
Loan 2 - Secured against IP1 only.
HDT
BANK B *(could also be bank A, but seperate for purpose of discussion)
80% of value of IP2.
20% + costs comes from LOC.
Question from broker:
Why Un XColl the two original properties?
Do you have to have small LOC against IP1 when it grows in value,
and further top up of original LOC when PPOR grows in value?
And moving forward from there:
IP 2 grows in value, set up LOC against it?
Then you have 3 LOC's..
IP 3 purchased wiht bits of LOC1 (original), LOC2, and LOC3.
As IP 3 grows, set up LOC against that (LOC4)
Yuk Yuk what an accounting nightmare!
Have I got this all wrong?
Or does a better scenario look like:
Loan 1 PPOR
Loan 2 IP 1
LOC1 secured by PPOR, IP1.
Then HDT
IP2 - 80% with new bank
20% plus costs comes from LOC1
As IP1, IP2, PPOR grow, somehow move equity to TOP up LOC1.
Also under HDT..
IP3 - 20% + costs from LOC1
80% from new bank
etc, etc, etc.
3rd Scenario
One loan for PPOR.
One loan for IP1
LOC - secured by PPOR/IP1
One big fat loan for HDT - with all further properties under that.
-------------------------
How do other people do this? with or without HDT thrown into the mix.
I need to understand WHY.
Second question raised by current lender:
Whilst all of the properties are independent (not X coll) then any
loan increases to extract equity from original Lenders
from the relative properties/facilities may be rejected on servicing
issues when they take into account the funding provided by other
financial institutions.
Anyone had any experience on this second question too?
Here's some questions that are currently being debated and I have read through nearly all the Cross Collateralisation threads (XColl) that I could find.
Can I state the positions as I see it:
Simon thinks they are not necessarily terrible for all scenarios, but would avoid it if possible
Rolf L - thinks they are terrible, avoid at all costs
Mr Ed - thinks you should rather gnaw off your own arm than XColl.
Rolf S - thinks they are bad - don't do it
Banks want to do it because they want your continuing trail and it makes it hard for you to jump to new lenders etc, and they love security - way more than they need.
OK. Here's some questions:
Currently:
2 homes with Bank A - cross collateralised.
Loan 1 - PPOR
Loan 2 - IP1
PPOR has plenty of equity.
IP 1 has enough equity to stand on it's own feet with it's own non XColl loan.
Line of credit established, with security against PPOR AND IP.
HDT set up. Want to move forward.
Moving Forward:
UN XCOLL
If we were to UN XColl all loans, then scenario would look like:
Bank A
Loan 1 & LOC
Secured against PPOR
Loan 2 - Secured against IP1 only.
HDT
BANK B *(could also be bank A, but seperate for purpose of discussion)
80% of value of IP2.
20% + costs comes from LOC.
Question from broker:
Why Un XColl the two original properties?
Do you have to have small LOC against IP1 when it grows in value,
and further top up of original LOC when PPOR grows in value?
And moving forward from there:
IP 2 grows in value, set up LOC against it?
Then you have 3 LOC's..
IP 3 purchased wiht bits of LOC1 (original), LOC2, and LOC3.
As IP 3 grows, set up LOC against that (LOC4)
Yuk Yuk what an accounting nightmare!
Have I got this all wrong?
Or does a better scenario look like:
Loan 1 PPOR
Loan 2 IP 1
LOC1 secured by PPOR, IP1.
Then HDT
IP2 - 80% with new bank
20% plus costs comes from LOC1
As IP1, IP2, PPOR grow, somehow move equity to TOP up LOC1.
Also under HDT..
IP3 - 20% + costs from LOC1
80% from new bank
etc, etc, etc.
3rd Scenario
One loan for PPOR.
One loan for IP1
LOC - secured by PPOR/IP1
One big fat loan for HDT - with all further properties under that.
-------------------------
How do other people do this? with or without HDT thrown into the mix.
I need to understand WHY.
Second question raised by current lender:
Whilst all of the properties are independent (not X coll) then any
loan increases to extract equity from original Lenders
from the relative properties/facilities may be rejected on servicing
issues when they take into account the funding provided by other
financial institutions.
Anyone had any experience on this second question too?