Join Australia's most dynamic and respected property investment community

Cross collateral when borrowing a new loan

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

  1. newbie property

    newbie property Active Member

    Joined:
    4th Nov, 2015
    Posts:
    29
    Location:
    parramatta
    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

    Joined:
    2nd Jul, 2015
    Posts:
    32
    Location:
    Perth
    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

    Joined:
    18th Jun, 2015
    Posts:
    2,781
    Location:
    Perth WA
    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 Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,037
    Location:
    Sydney
    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.
     
    teetotal likes this.
  5. newbie property

    newbie property Active Member

    Joined:
    4th Nov, 2015
    Posts:
    29
    Location:
    parramatta