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Loans crossed

Discussion in 'Property Finance' started by dan2101, 27th Dec, 2015.

  1. dan2101

    dan2101 Well-Known Member

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    So prior to being aware of this forum and the fact that crossing loans is bad my broker did exactly that.

    I was wondering what the exact implications are of this in my circumstance as I was considering selling one of the properties.

    Property #1 has a loan of $148k and current value is approx $300k - this was the property I was contemplating selling.

    Property #2 the loan was $290k with a current value of approximately $250k. Yes it's a dog of an investment.

    So the total lend is $438k. What will happen if I sell either of these properties or I simply want to un-cross the loans.

    Thanks!
     
    Last edited: 27th Dec, 2015
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The implication is that you need the bank's permission to sell. They will only do that if you pay the remaining loan down to make the LVR less than 80% of the security value.

    Get tax advice before acting.
     
  3. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker

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    Its easy to get the loans uncrossed - your broker will just need to submit a new application in order to restructure the loans.

    Ideally this is how the loans should be structured:

    Property 1:

    Loan 1: $148,000
    Loan 2: $92,000

    Property 2:

    Loan 1: $192,000

    However there seems to be a shortfall of $6,000 which means either a) you paid LMI or b) your properties have dropped in value.

    Is this correct?

    I would also say that it would have been better to borrow as much as possible 90% or more against the purchase and paid the LMI because

    1. You have more up your sleeve for subsequent purchases (be it property, shares, etc) and
    2. LMI is tax deductible for the first 5 years of the loan
     
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Generally the bank will want the LVR to be reduced to 80% on the property you decide to keep - or LMI will be payable.

    Cheers

    Jamie
     
  5. dan2101

    dan2101 Well-Known Member

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    Shahin yep the value of one property has dropped.

    So if I sold property #1 I would need to restructure the loan on property #2 so would have to come up with funds so that I was only owing 80% of the current value. So as an estimate if it was now worth $250k my loan would be $200k (unless of course I wanted to pay LMI).

    I can now see why this is a problem. That's basically my profit gone to bring the loan down to $200k from $290k.
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Small comment on the remnant lvr

    The bank will typically want the loan reduced to the last approved lvr

    Whether that be 65 % or 95 % loan to value ratio.

    Otherwise what simply should be a partial release becomes a full loan app ( which it is with some lenders anyway), which is also why getting uncrossed may not be as easy as it may seem.

    Ta

    Rolf
     
  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Which lender are you with? Depending on your plans and lender, it could be worth getting the whole lot reviewed to see how your current lender fits with your longer term plans. If they aren't a good fit, it might be a good time to restructure the whole lot. You might be able to get a favorable desk top val to help avoid paying LMI on the restructure.
     
  8. dan2101

    dan2101 Well-Known Member

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    Thanks guys.

    I've currently got a few loans with loans.com.au but the offending loan is with Citibank (on a pretty ****ty rate around 4.6%. I'll have to look into it I guess. Another lesson learned the hard way!
     
  9. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    At least this one should be reasonably easy to sort out :)