Is there any risk in having all my 3 Loans with the same Bank even if

My dear experts,i'm back again with another question.

I presently have two property loans with "Bank A" and one property loan with "Bank B". I am considering to refinance my loan with "Bank B" to "Bank A" because i have an opportunity to access some equity. This implies that all my 3 property loans will be with the same lender. Even though they are not cross collaterised, is there any demerit to doing this ? or any red flags that i need to be aware of ?

Thanks.

 

Yes. All monies clause means surrogate cross coll because any security with the bank secures all debts/.

Legal Tip 242: Why is it safer to get all loans with a different lenders? Legal Tip 242: Why is it safer to get all loans with a different lenders?

Legal Tip 130: What is an All Monies Clause? Legal Tip 130: What is an All Monies Clause?

 

I would say you need to weigh up the benefits against the risks of the all monies clause.

Their can be a number of benefits to having all loans with a single lender. The benefits are instantly accessed versus the all monies is a risk mitigation.

If you ask the brokers on here how many clients have been caught out by this? Versus how many have benefited from say an aggregate borrowing discount?

Not saying I would have all loans with 1 lender but in your case we are talking 2 loans.

 

Another advantage is negotiating power - higher discounts potentially.

There is little to no extra risk unless you start defaulting. But by then it will be too late to move. It like insurance, you don't need it until you need it.

I wonder if people were ringing insurance companies when the fires were approaching and if the insurers were saying no. Actually I had a client buy in a certain area that had been under bush fire threat and he was having trouble finding insurance to settle because the insurers had stopped insuring for that postcode.

 

I think Terry has covered the risks - and I also agree with the above in practical terms the benefits of generally outweigh the risks as you're able to pricing lower based on the aggregate limit.

 

I have no intention to default and I would definitely never put myself in this position so I don't mind that the majority of all my lending is with one lender. Xcoll on the other hand...

 

And Discount is just one benefit.
Their is also single package fees, simpler consolidated banking, valuations such as above if applicable.

Exactly like Terry said it’s just insurance not to have it with 1 lender. I would argue though, if your defaulting anyway then it’s likely your defaulting on all loans anyway so would it really even make much a difference?
I would rather probably negotiate with 1 lender instead of say 3 different ones??

 

There is a difference when defaulting.

Say, Homer has 3 x $500,000 loans with ASS Bank. He has a cash flow problem and starts defaulting - can't meet the repayments. He sells one property. The chaps at ASS Bank may say we are not releasing the mortgage unless you use the sale proceeds to reduce your remaining debt. I am not sure they could actually do this without cross coll, but would think the all monies clause allows it.

The ASS men might also take possession of the property so he cannot sell and they may sell it. He might have trouble independently selling the other properties to try to get back on track as the bank has mortgages over all of them.

Instead Homer went to POO Bank for one loan, WEE bank for another and SHI Bank for the 3rd.

What he could do is to keep paying the loans on 2 and nothing on the 3rd loan. Let the bank take it. They will sell it and refund the surplus and the remaining 2 loans will be unaffected.
He might even choose to sell one of the other properties that he is not defaulting on. Ans use the proceeds to get back on track with the loan he is missing repayments on.

 

I don't know anyone who intends to default or deliberately puts themselves in such a position!

Actually I did know someone. She asked me how she could hand back the keys to the bank as the property had dropped in value....

 

She probably just finished up watching The Big Short.

 

Speaking from experience, this is how I set things up and it saved me big time. You never know what can put you on your ass so have a plan B. If you can make sure you are able to refinance at all times, which means don't over extend, plan for a drop in values, rents dropping or not being able to pay your mortgage or APRA shifting the goal posts. Maybe all these things could happen at once

 

Remember to consider risk in terms of both likelihood and consequence.

A low risk might be the likelihood is low despite moderate consequences.

 

Never do cross Coll unless it’s a deal of the life time. Meaning you’re gojng to make multi million.

 

What about guarantor loan

 

I can think of about 3 cases for crossing.

I wrote this a while back, haven't looked at it since:

Loan Tip: A case for Cross Collateralising Loan Tip: A case for Cross Collateralising