Cross collateral when borrowing a new loan

Discussion in 'Accounting & Tax' started by newbie property, 4th Dec, 2015.

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  1. newbie property

    newbie property Active Member

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    Hi @Terry_w,

    I read your advice on setting up the loan and trying to avoid cross collateralize the properties, etc….they are very helpful!


    I’m just thinking or should I say that I’m in the situation below (guess there are other people are on the same boat)


    1) I don’t have 20% deposit to secure an IP,

    2) and I don’t want to pay LMI to get a loan for the IP, as the ongoing cost is just too much;


    the only thing is to use my home as the equity, there are funds in redraw to show that I’ve made extra repayments, where the extra funds should not be redrawn to purchase an IP (as your advice that we shouldn’t use cash to purchase an IP). but I don’t want to go through refinance to take out the equity (I suppose refinance is the only way to release some equity?), again too much cost for refinance.


    So in this case, the bank of course wants to use my existing home as an extra security for me to borrow money to buy an IP, and I want to use the same bank as they do offer good interest rate (I cannot use another bank as I cannot show I’ve got 20% deposit and all the above reasons…). I’m guessing in my situation, I’ll probably just have to use my PPOR and IP as securities to borrow money? so tough luck and fussy me, does it mean I'll just have to suck it up with the cross collateralization on both properties, surrender more power to the bank, is this the only way out there?? I just cannot have the ideal loan setup as suggested by you, Terry....

    do others find it's just very hard to find a new lender when the current lender has offered a pretty good rate, and when you just don't have enough deposit..?
     
  2. Digitalism

    Digitalism Active Member

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    I am sure one of the brokers here will speak up but you definitely need to go and see a broker.

    If you have sufficient equity in your home than you can use that as the deposit.

    LMI is a one off cost and not an ongoing cost, try and aim for 88% LVR.

    Most importantly you can definitely borrow without having to cross your loans.

    Again, see a mortgage broker but you can draw equity from your PPOR and have that as a separate split and use that as your deposit + closing costs. Apply for remaining loan with whichever bank you and your broker decide. No crossing of loans.
     
    Last edited: 4th Dec, 2015
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    There's no need to x-coll, all the brokers on here set up that kind of loan with no x-coll all day long.

    The bank will want the extra security, of course, but you don't need to give it to them.
     
  4. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

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    Of course you can. Just ask your existing lender to split your loan into 2 portions. use the second portion for the deposit. no crossing.
     
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  5. newbie property

    newbie property Active Member

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  6. Peterk13

    Peterk13 Member

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    Pigging backing on this thread, is it possible to request the bank to remove the cross collateralisation clause upfront if one can identify it?

    Reading NAB's Memorandum of Common Provisions, I can see that the mortgage is security for payment for 'amounts owing', which basically covers all obligations to the bank.

    It's basically standard documentation, so I'd have thought it's take it or leave it. Do brokers have more bargaining powers to negotiate this away than the normal consumer? Or is it the case of having your loans with different lenders these days?
     
  7. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

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    Sounds like you are talking about an 'all monies' clause.

    Yes you can request to remove it, but they won't.
     
  8. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    @Peterk13 there's no way to remove the 'all monies clause', but realistically it's not a significant risk for most people if their portfolio is structured properly.

    Many of the risks associated with cross collateralising are similar in nature and have a much higher probability of becoming an issue due to the unfavourable way the portfolio is structured. Fortunately it's not that difficult to remove cross collateralisation, but it does require a refinance of all the loans/properties involved.