Crossing of Loans

I would like to get some clarification on cross collaterising loans.

Scenario:
Property 1 ($1.5m) and Property 2 ($2m) are held as security
Total Debt: $1.5m

Property 1 is then sold

What happens?

Will the bank perform a serviceability check to ensure I can afford to maintain the loans of $1.5m?
Or will they ignore that and simply accept that if Property2 is $2m, 1,500,000/2,000,000 = 75% and allow me to continue on without any issues?

 

You could only settle if the mortgage is discharged on property 1.
Therefore you would need to apply to the bank for a substitution of security for the remaining loan so that it is secured only over property 2.

Depending on your set up this may not result in a new servicing calc

 

Tax Tip 74: Selling a property that secures other loans Tax Tip 74: Selling a property that secures other loans

 

Thanks Terry, I'm actually in situation 3 as per your other thread.

My properties aren't crossed at the moment, but I want to deliberately cross so that I don't need to pay them down.

I actually pulled equity from property 1 to settle property 2, now I'm planning sell property 1, but want to maintain the loans for forward planning purposes.

@Terry_w is there a situation you can think of where it would end up requiring a new servicing Calc?

 

not sure how deliberately crossing will avoid paying down loans - well, i know how it does, but it is not needed.

Just set up a new split on property 2 and pay out the loan split on property 1 used for it - actually not separate split.

Actually in many cases it may result in a new serviceability assessment - how could you afford to keep the loan if you cannot service - will be the lenders comments

 

Hang on.... you could do a substitution of security for the loan you want to keep and transfer it over to the (proposed) remaining property. No need to cross them.

No servicing assessment generally required

 

Bank won't lend me money under current assessment (over the top analysis of spending). Therefore I can't get a loan using property2 and payout.

In terms of assessment, I've modelled my scenario with 7.5% p&i on all loans and cashflow is sustainable... banks have way too many over the top buffers in place (I understand why they do it, doesn't mean I agree with it)

 

Thanks Marty for confirming that. I think that's the way to go.

 

There is no need if the loans are split, just substitute security.

 

Your question does not make sense, in your question scenario, the funds are applied how the lender likes at sale time - you may get nothing in hand.

If you have properties with separate loans, most lenders will allow you to sell and put the loan on the new place as long as you stay under the existing loan amount and 80LVR. The provision will usually be must all settle simultaneously, it can get complex if your buyer has mortgages too and they are doing similar thing to buy elsewhere.

or

if the lender has a term deposit product, you may be able to use that, but I think that is riskier, with the former they have to already give approval prior and then it is all a done deal once settled, you know, cause things change quickly

 

Ahh..ok, learn something new every day nearly....


So they will allow across multiple new props, what about multiple existing props where you may prefer one existing lender over some others ....

Would not have thought interstate would be an issue unless they did not operate there or had a bad rating inside lender.....

 

I did one recently, 4 places had to settle same time, 2 NSW 2 QLD all different lenders AFAIK and it had to be all done at one location, which was against some others policy, everyone had to compromise a little, but I was surprised when it all went through no prob......

But I did a lot of the leg work, for myself and the others, and I was one of the end users, I am not a broker or solicitor etc, but was either do it, or it would have fallen over,

But this was 1 mortgage moved to one other property, not one mortgage now across 4 properties.

I would have thought going one to multiple would mean technically is new loan as would have to be split....unless you crossed them......if split how many allow this without assessment ?