Is n't this cross collterising ? Is this good structure of loans ?

Hi Guys,


I've got a PPOR which has over $100,000 "usable equity". And I've asked my broker for this equity extraction ( for investment property deposit + costs) and a new loan for Investment property.

My broker is suggesting to go with CBA only for refinancing PPOR and new IP loan. Here they are expecting PPOR as security for equity part in IP.

I'm insisting my broker to have different lenders for PPOR and IP. But he says, it is not possible now a days with the banks. Because banks are not giving cash out ( equity extraction above 100k) just like that without telling/providing enough evidence. So that's the reason he is insisting to go with same lender for both loans.

Do you see this is proper way of doing this ? Or My broker is wrong ?

 

Good for the bank not so good for you.

 

Not that's just plain wrong
It can be done, I do it all the time so I'm not sure why your broker is telling you that.
Some lenders are worse at cash out than others but CBA is one of the better ones.
That doesn't mean the new property purchase has to be with CBA as well.
Do not cross secure the properties either.

 

It does not sounds like cross collateralization to me. The way I read it is:

OO PROPERTY:
OO Loan (existing $)
INV Deposit Loan ($100K)

INV PROPERTY
INV 80% Loan

The owner occupier only has the INV deposit and the OO debt secured against it. The INV property itself sits on its own.

You can definitely do the loans with two different lenders but I would question if this has any commercial benefit. It'll mean two separate applications and two lender assessments and two sets of moving parts.

I would however stress test why CBA - plenty more options at lower rates at the minute.

 

You can have two properties with the same lender without the loans being cross collateralised. It's actually fairly simple to acheive this, it just requires structuring two applications properly.

If your broker is setting it up properly it should be fairly simple for them to explain how they're doing it to avoid cross collateralisation.

 

cross collateralising securities is just using 2 properties as security for 1 loan

 

You don't need 2 different lenders to not have it crossed.
Use equity for the deposit the3n borrow 80% secured against the new property.
Just check the loans that each only has the ONE property listed as collateral.
I refinanced my (all stand alone) loans and the new contracts had ALL properties listed on ALL loans. Nice try COM bank.

 

Cash outs where the new split is used for IP2 and the original loan was Ip1 are crossed in most instances. CBA has loan security for TWO loans eg the existing IP and the new split and ANZ has security for 80% of IP2. However that new split is really a limited form of being crosssed. eg If Fred and Wilma only defaulted with the ANZ loan the two loans with CBA wont have recourse. Its not good for the credit file but the crossed issue isnt triggered.

In the OP how would the other lender have security ?? A second mortgage ? This still acts to cross the loan as two lenders now BOTH have security over the same property. So if the new lender had a second mortgage and you default their enforcement may even trigger a concern with CBA who hold the first mortgage. Again acredit file issue of concern more than a tue crossed loan concern.

My broker is suggesting to go with CBA only for refinancing PPOR and new IP loan. Here they are expecting PPOR as security for equity part in IP.​

I'm insisting my broker to have different lenders for PPOR and IP. But he says, it is not possible now a days with the banks. Because banks are not giving cash out ( equity extraction above 100k) just like that without telling/providing enough evidence. So that's the reason he is insisting to go with same lender for both loans.
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But CBA could have two loans for two properties and only secure each loan against its own property. Not against the other. But if there is just one property its going to be crossed in some respect. At least until IP2 rises in value so it can have equity released. That refinance could be used to refinance and discharge the split to CBA. Crossed issue is then undone.

Sometimes crossing is like LMI. Its unavoidable. Best not to have but you cant tell CBA they cant have loan security.

 

Yes it pays to read your loan offer documents before signing, banks will try to sneak this under your nose sometimes, I think that's just their preferred structure.
I've had it happen multiple times when the loan applications were specifically set up to not cross securities and the loans are with the same lender, in my experience it's the big banks that do this the most. Usually rectified fairly quickly once pointed out to them.

 

100% can be done! I’ve done 2 cash out this week for clients, both $250k+.

 

I would be asking your broker to compare a CBA Investment Loan to other lender offerings on the market. CBA certainly not the most competitive in this space at the moment

 

there are numerous banks that allow equity draw out over $100k some even up to $1m.

Unless it's policy or valuation driven..there isn't really a reason to go with cba right now.