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Loan Tip: Uncrossing Crossed Colleralised loans

Discussion in 'Property Finance' started by Terry_w, 26th Jun, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    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.
     
  2. mugen

    mugen Member

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    Excellent write up. Finally great details on how to approach the problem and resolve it.
     
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  3. Erica

    Erica Well-Known Member

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    Thanks Terry, excellent post!
     
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  4. Redwood

    Redwood Well-Known Member

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    Good post Terry - something I was a victim of myself a while ago, great post for punters to refer back to.

    Cheers Ivan
     
  5. JPS25

    JPS25 Member

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    Great post
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Believe it or not I crossed in the early days too.
     
  7. Arnel

    Arnel Well-Known Member

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    Thank you terry for the explanation, I am looking to release some equity from a CC scenario

    Fingers crossed :)
     
  8. Amativus

    Amativus Member

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    Great post. The addition to this should be that what many people are told by advisors of all sorts is to have stand alone deals, rather than cross securitised transactions, for asset protection in the event that things go pear shaped. The thing they they don't understand is that if things do go pear shaped, irrespective of whether stand alone or crossed, under their(lenders) Ts and Cs, they have the right to pursue you for outstandings where you have your securities pledged to them.

    My theory is to use the power of leverage, when you have enough equity, remove ppor from all pledgings and continue with the power of leveraging under the one roof of a lender as you can get the better deal due to the overall portfolio held with that lender. I like cross securitization, allows me to borrow 110% with each new transaction as the old gradually depletes.

    IMHO
     
  9. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Good post Terry.

    Seems that the majority of uncrossing I do relate to the second example - ie. one above 80% and the other below.

    Cheers

    Jamie
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    For the legal side you may want to see my post
    Legal Tip 8: Avoid Cross Collateralising Security Properties
    https://propertychat.com.au/communi...ross-collateralising-security-properties.562/
     
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  11. Investig8

    Investig8 Well-Known Member

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    Excellent post Terry.

    For this and many other reasons is why when people ask me advice I sent them to SS first, it can be a very short university degree in the course "Bachelor of Property", specialising in whatever you like.
     
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  12. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Excellent post Terry!

    It's also worth mentioning that uncrossing can also be a good time to review lenders - there's no need to stick to the one lender unless you've got a fixed rate in place. For a large portfolio that needs uncrossing, spreading across a few lenders is usually preferable.
     
  13. SharonC

    SharonC Member

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    Hi all
    If you have 2 crossed loans <80%lvr with one bank and they won't uncross the loans, and you want to refinance both with another bk(s), is it easy to refinance with 2 separate banks one at a time, or does it need to be refinanced at the same time
    thanks
     
  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes it should be easy. They will all just have to settle at the same time. The incoming lenders will arrange that with the outgoing.
     
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  15. SharonC

    SharonC Member

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    I suppose it is better to ask the existing bank(in this case nab) to uncross both loans first and then refinance to other banks one by one to maximise cash out and serviceability with the first refinanced bank but the nab bank manager doesn't seem interested in uncrossing the loans
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I am doing an NAB uncross right now - it has taken 3 months so far - but going though.
     
  17. SharonC

    SharonC Member

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    geez. how come so long
    were they being un cooperative?
     
  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Long story. valuations, mistakes along the way (theirs), incorrect documents etc etc.
     
  19. SharonC

    SharonC Member

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    typical nab.worst bank. apart from their servicing, nothing else going for them
    we dealt with the laziest,slowest most incompetent bk manager ever
    never again
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You shouldn't deal with them direct, but through a broker.