Loan Tip: A case for Cross Collateralising

I would - it should be easy given the LVR.

 

Yes, once complete it is best to uncross straight away. Maybe even refinance some to other lenders.

 

An easy and cheap way to uncross is during a refinance. Myself and my investment partner bought an IP years ago (before I found out crossing was bad) and cross collateralised it against his PPoR. Recently we refinanced and uncrossed at the same time. That was very straightforward.

 

If the wife is returning to work, she can verify when and how much she will be paid AND they can service using cash savings instead of income until that time then she could still borrow as per normal.

 

It's good to get an example of when it is required but given all the awful examples given I am unsure why it is still acceptable?
Would the advice not just be "sit it out until your back at work?". I mean this couple has 8 properties, they are not struggling so why would throwing an X-Coll into the mix just to buy number 9 be o.k?

 

It would be a risk for the client, but a calculated risk. How likely is it for something to happen. How likely is it for the new property to grow quickly so any cross coll can be unwound etc.

The client in this case would have to weigh up the risks v potential rewards and decide for themselves whether to sit back and wait or to keep going with more risk.

 

2 other examples of crossing which may be worth considering

a) a parental security guarantee.
dads house is used as security for daughter's purchse so she can borrow 100%.
It would be safer for dad to lend her the deposit, but maybe this is not possible.

b) owner occupied rates on investment properties
some lenders allow this and since I started this thread I have put at least one customer in under a cross collateralised security loan so he can get a better rate. He wanted to take the extra risk while young so he could save about $4,000 per year in interest.

 

Crossing can be helpful if you have commercial and/or business debt as more security generally means better pricing. Horses for courses, but it‘s a lever that’s available.

 

Do/Can lenders x-coll:
1. using natural person owned property (PPOR or resi IP) & a trust/company owned for new
purchase for either natural person or trust/company owner?
2. using PPOR, resi IP & commercial IP as a mix?

 

1. yes
2. yes

but you need to be extra careful to avoid these

 

Seeking clarification

Example,- We have a loan on our PPOR and if we refinance, bank will do valuation and calculate serviceability based on our income/expenses. As a result we can borrow $1mil and our current loan is only $800K so $200K. That means if we pull equity to invest in shares. the new loan split be $800K +$200K.

But if we want to buy an IP and now based on potential rent etc. Bank says your serviceability allows you to borrow $500K - does that mean our refinance loan for ppor be 800K (no change) and this $500K be linked to new IP.
Or
$300K be linked to new IP and $200K be linked to PPOR and it be considered cross collatral?

Apologies, if my example is long and unclear

 

I can't understand that sorry

 

Is new loan going to be cross collatral using equity of ppor and additional funds or it will be stand alone married to new ip only

 

That will depend how you set it up or how it is set up for you.

 

You can do both but would suggest the second option.

First option will require cross-collaterisation so you’re <80% on the combined value.

Second option allows you to keep securities separate and borrow up to 80% on each.

*LVR’s subject to the lenders policy.

 

Would like to borrow the 105% stamp duty, fees etc...

 

You should be seeking credit advice.

If you have equity and serviceability it is possible to do with or without crossing securities.