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Crossed vs Uncrossed loans - tapping future equity. Help me understand

Discussion in 'Property Finance' started by proper_noobie, 15th Aug, 2015.

  1. proper_noobie

    proper_noobie Well-Known Member

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    I understand the basics of "point in time" of a crossed vs uncrossed loan, however I don't understand how you use the growth of uncrossed loans to fund future purchases. Consider the following:

    My understanding of crossed loans:
    Each property is part of a shared "pool" of funds. If all properties have gone up 20%, you have this growth as equity to use for future purchases as the additional equity can be tapped from the pool.
    However, if you have one excellent performing property and one poor performing property, the bank may not let you take out an additional loan since your overall portfolio hasn't made any appreciable gains.

    For uncrossed loans, does this make sense:
    PPOR is paid off.
    Each investment loan is bought at 80% and uses the remaining 20% from the PPOR equity.
    If we use the same example above with one excellent and one poor performing property, is an investor able to tap into the equity from the excellent performing property without the bank knowing or caring about the poor performing property, to fund another purchase?
    If so, doesn't this suddenly make the loans "crossed" because there's more than one link on a property?
    What if you have three properties worth $330k and wish to purchase one property at $1m and you have sufficient equity across your whole portfolio but insufficient individual equity, would this situation make a crossed loan?

    Thanks
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    A crossed loan is one where there is more than 1 security.

    In the situation you describe it is one property with multiple loans. And yes you could borrow against the good one and ignore the other.

    You can borrow separately against multiple properties and use the funds for the new property - all without crossing.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    No. It's all in the way you structure the loans - each loan only has one security, so it's not crossed.

    If the loan was secured by 2 properties, ie the ppor and ip, then they would be crossed.
     
  4. proper_noobie

    proper_noobie Well-Known Member

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    That's clear - thanks for the replies.