Cross collaterilisation confusion

Hi folks

Yes the title is a mouthful and has me confused.

I am in the process of switching to ANZ from ING through my trusty broker. He assures me the loans wont be 'crossed' just the 'securities behind them' and there will be 2 separate loans for 2 properties.

Does this make sense?
Am i getting played here?
Or is 2 loans for 2 properties all good?

Cheers
Paul

 

Sounds like he's x-colling the properties and is possibly not so trusty!

2 loans is fine, but if the 'securities behind them' are crossed it's no good.

I doubt you're getting played, it sounds like your broker may not quite understand what you're asking him to do. Many broker will x-coll all day long and don't see anything wrong with it. I would look for a new one who gets what you're trying to achieve.

 

is it still possible to cross if there are indeed 2 separate loans? Jokes aside he is very well regarded and is the broker of choice for our property (FUP) forum.

Am i better off switching just the larger loan and leaving smaller one with ING?

 

From the sound of that they seem to be clearly Cross Collateralised

 

Can you please confirm the loan amounts and property values - this should clarify if they're crossed. Well it won't guarantee if they aren't because still could be, but will be able to tell straight away if they are.

 

Cross collaterisation refers to the use of more than one security for a loan.

Example:
Loan A secured by property A.
Loan B secured by property A&B

In the above example both loans are secured by property A. So they are cross collaterised.

Not crossed example:

Loan A secured by property A.
Loan B secured by property B.

In this example each loan is only secured by one property. This is NOT cross collaterised.

I hope this clears it up for you.

 

I can't really understand how you can 'cross the securities' but not be cross collateralised.

 

Thanks folks, this is clear now ill ensure that they are not crossed.

For the record values are below:

PROPERTY A:
Valued $720k
Mortgage $520k

PROPERTY B:
Valued $315k
Mortgage $267k

Cheers

 

Sadly there are lots of 'well regarded' brokers who don't really understand how to structure loans. For eg, Destiny Wealth (Margaret Lomas) brokers will cross you up by default. It's just what they do.

 

This is my point, it seems like semantics but I'm sure its a sales pitch in the banks favour

 

They're crossed.

 

One solution as you suggest would be to proceed with one property, but hold off on the second for the moment. It's still possible to cross the second one later, but that would require a deliberate effort. You would also be able to see the securities listed on the documents of the second deal and refuse to proceed if more than one property is listed there.

Here's how you'd structure to avoid crossing the properties:
PROPERTY A:
Valued $720k
Mortgage 1 $520k
Mortgage 2 $56k

PROPERTY B:
Valued $315k
Mortgage $252k

 

520/720 = 72%
267/315 = 84%

so if there is only 2 loans and if you are not paying LMI on the B loan that must mean the security for loan B is both property A and property B.

 

Why not get access to the equity while your at it.

Property A = 80%
1. 520
2. 15 (relates to property B.)
3. 41 (cash out loan for future investment)

Property B = 80%
4.252

 

Do you follow her on FB? "My relationship with @StGoergeBank is on the rocks. I'm seriously considering a divorce"

 

Unless you're paying mortgage insurance or having it waived (medco/professional etc) then they're crossed.

(520 + 267) / (720 + 315) = 76% so no LMI - but X-COLL

@Peter_Tersteeg has suggested the loan structure you should have to avoid.

 

And if you did pay LMI on loan 2, you have a sub-par broker!

Haha - having a 'relationship' with a bank is always one-sided I prefer a more 'open' relationship with my lenders!

 

Lots of good input here from great brokers.

 

Have you read the loan offer documents? They will tell you if the loans have one security (not cross collateralised) or multiple securities (cross collateralised).

There should be a section in the loan docs with outlines the security for the loan. If there is property listed that's good. If there are 2 properties listed, that's not good unless you are cross collateralising for a specific purpose.

 

Not always, could be more to the story - long term plans for another property. Property 2 might be an IP.
But yes on face value LMI and X-COLL could easily be avoided.

Haha - having a 'relationship' with a bank is always one-sided I prefer a more 'open' relationship with my lenders!