Intresting view on cross collateralization

Which is what?

 

What he said. no point using structures to separate and confine risk if you have an all monies clause with one lender.

 

After nearly 1 1/2 years on these forums I know I should be an X-Coll guru (don't do it) but I have another is x-coll acceptable in this scenario.

PPOR Value 1.2mil (300k debt)
You want to buy a new PPOR and then renovate it before moving in but do not want to sell first. New property is worth say 1mil and you budget 400 for the reno. Once completed you will definitely be selling your old PPOR.

In this scenario I know you could do an equity release for the deposit and then make the purchase and then get the construction loan all seperate BUT would it not be easier to simply cross up the properties which will then be uncrossed when your finished.

The total debt would be around 1.7 with around say a 3.2 completed value so a very low LVR. I also imagine it would give you a very strong case for a low rate which could be very important with such a large holding debt during renovations?

 

No its easier to pull out the equity against one property instead of getting 2 properties valued. What if the valuation on the second comes back super duper crappy? The LVRs in your example are quite low but still...... why do it?

 

Thanks Shahin.
The "why do it?" Is actually my question though. I appreciate it can be done as you suggested but if you were not concerned about the Val's due to the low LVR and planned on uncrossing on sale is there any benefit to doing it?
I have read about a lower IR? Or could this be achieved simply be using the same lender and not being crossed?

 

Whether your cross or don't doesn't affect the IR. You can definitely have multiple loans with the same lender without crossing.

The lender or broker will need to submit multiple applications vs just one application which may be one of the many reasons (together with a complete lack of knowledge) why they cross.

 

What about tax implications?

If I had a PPOR worth 1million with 200k debt and wanted to buy an investment property for 300k. which one of these would be better:
1. Redraw 60k for the 20% deposit and borrow 240k in the new loan
2. Cross with my PPOR and borrow the full 300k in the new loan

Isn't the disadvantage of option 1 that I would be increasing the size of my non-deductable loan? In other words I would be ending up with less equity in my PPOR and an unnecessary 60k of equity in my investment property. Thus paying more tax overall?

Is option 2 even possible now with the new regulations?

 

Deductibility of interest depends on the use to which the borrowed funds are put, not the security.

Using Rolf's example will maximise deductions and avoid crossing.

 

Hello - what would be the most ideal way to access equity from an IP, say for a deposit on another IP? Top up existing IPL and redraw? Or take out an equity loan against the initial IP?

 

^^This. I got hit with this by ANZ.

 

Thanks Rolf and Terry... that was the key thing that I was missing.

Do people usually take out the separate loan for the 20% + costs from the same lender as their PPOR or from the same lender as the new IP? Or from a third lender? Or doesn't it make any difference?

 

You can use the current PPOR lender, or refinance to whichever lender will give you the best val (and suits your long term goals).

 

Not sure how I came across this old post but here we are.

Good insights here but...

I'm not sure this is true today or even was true 2 years ago?

 

Crossing has never increased your serviceability on paper, in some cases it technically makes it worse. In previous years assessors often locked the other way when it was marginal, they definitely won't today.

 

Good read. I have a friend that has found this out the hard way. He got together with a girl about 2 years ago and they bought a house together. She already had a investment property so they just went to her bank to get the loan for the new place. The bank crossed both properties.

Move forward 2 years they have split up and their jointly owned home has been sold. Bank took the proceeds and paid them off her investment property. Her property had gone backwards in value and has hardly any equity. They also had a baby together and she is not working so could not borrow the additional funds even if she was able to use equity to pay him out. Tough lesson.

 

In the good old days there was a saying...

If you owe the bank $1m and the bank calls it in, you have a problem....If you owe the bank $10m, the bank has a problem.

Small players individually have little pull on the bank ie they are more important to you than you are to them.