We all know that you should avoid cross collateralising your loans, but if your loans are crossed how do you fix the problem? Cross collateralisation, or cross securitisation, is when 2 or more properties have been used as security for 1 loan. To fix this you must make sure that each loan is only secured by just 1 property. Where the LVRs are under 80% this is relatively easy to do Loan A is $360,000. Security is property A and property B Loan B is $416,000 Security is property A and property B. Property A is worth $750,000 Property B is worth $520,000 Just tell your broker or lender that you want to release security for each loan. For loan A you say you want to remove property B from the mortgage. The lender will then order a valuation and make sure the LVR will be under 80% = $360,000 loan secured by property A valued at $750,000 = 48% LVR. Loan B is $416,000 with security of property be at $520,000 = 80% LVR Should be no problem. The loans need not change at all, so this could be done with most lenders without causing a reassessment. Where 1 LVR will be over 80% and 1 under At the moment Loan A is $360,000. Security is property A and property B Loan B is $480,000 Security is property A and property B. Property A is worth $750,000 Property B is worth $520,000 You will need to rejig the loans as follows After Loan A $360,000 to be secured by property A only Loan B is $416,000 to be secured by property B only (reducing it to a max of 80% LVR of $520k) Loan C is $64,000 to be secured by property A only (this is the amount loan B was reduced by) Loan A is deductible against property A Loans B and C are deductible against property B This will cause a reassessment because you are paying down a loan and setting up a new loan. Note that deductibility is not changed in this example as the overall loan amounts are still the same, it is just the security of the loans that is changing. While you are at it access the equity to 80% LVR Property A is worth $750,000. 80% = $600,000 $600,000 is the total available loans that would be secured against property A keeping the LVR at 80%. Loan A is $360,000 Loan C is $64,000 These total $424,000 so the amount of available equity to use would be $600,000 - $424,000 = $176,000 Therefore Loan D $176,000 secured against property A, deductible against the property it is used for. All loan should be IO. Ideally loan D would be a LOC. Where both loans will be over 80% LVR Where both loans end up over 80% LVR it may be better to wait it out a bit longer. Changing security now could mean a new LMI fee could be charged. What if one crossed loan is fixed? The loan security can still be uncrossed without changing the loan term or amount. However if the loan is over 80% and it is fixed then it may be better to wait for some growth to kick in and to reassess once the fixed rate expires.