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Cross collaterilisation confusion

Discussion in 'Property Finance' started by tasksta, 11th Aug, 2016.

  1. tasksta

    tasksta Active Member

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    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
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    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.
     
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  3. tasksta

    tasksta Active Member

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    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?
     
  4. Balman

    Balman Well-Known Member

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

    Brady Well-Known Member

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    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.
     
  6. York

    York Finance Broker Business Member

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    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.
     
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  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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

    tasksta Active Member

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    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
     
  9. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    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.
     
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  10. tasksta

    tasksta Active Member

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

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    They're crossed.
     
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  12. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    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
     
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  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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.
     
  14. Marty McDonald

    Marty McDonald Mortgage broker

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    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
     
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  15. Brady

    Brady Well-Known Member

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

    Brady Well-Known Member

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    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.

     
  17. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    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!
     
  18. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Lots of good input here from great brokers.
     
  19. Perthguy

    Perthguy Well-Known Member

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    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.
     
  20. Brady

    Brady Well-Known Member

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    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!

     
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