Multiple properties under one loan using splits

Hi all,

I am refinancing 2 x IPs
The broker has offered me 1 loan with 3 splits i.e.
IP1 : IP1-equity loan : IP2 (ip2 secured against ip1)

Do any problems arise in this setup, particularly with the sale of one of the properties...?

 

Huge potential problems.

I would avoid this completely.

 

Don't

 

Run.

 

Its good to have more than one lender to keep the offers competitive but if you want to pull out equity for a new purchase administration can be substantially easier
Example . See a place you wish to buy need $6m.
1. Cross collatorised One application
2. Six multiple lenders. Six applications to pull equity out from six banks

 

Worth pointing out that the borrower needs to sign six application forms instead of one. Hardly an onerous task, it's the broker or banker that needs to do the extra work (which isn't the borrowers problem).

What if you cross collateralise and 3 properties go up by $100k and 3 go down by $100k. The net equity is zero, so no equity release. By structuring correctly, you'd at least have $300k equity to access.

Cross collateralisation - 10 reasons to avoid

Crossing is rarely to the borrowers benefit and puts a lot of power in the hands of the lender. It doesn't take that much extra effort but potentially gives you so many more options.

 

Run faster

 

X-coll is the default for many bankers and brokers but it's far from the best way to structure your loans. Most of the brokers here have first hand stories of the devastation that can occur due to poorly structured loans. For the sake of a couple of extra signatures, do it right the first time.

 

Could it be the St George product you are looking at?

 

You don't gain anything from structuring like this - but lose a lot of flexibility for your investment plans over the long term.

 

The bank is mortgage house.

The reasons for doing so are probably:
1) individually each loan is less than $150k and the minimum lend is $150k, together they meet the minimum lend size.
2) save administrative costs for them and I, i.e. application setup.
3) ignorance

 

They're not a broker, they're a mortgage manager. They get money from other sources, package it under their own brand and sell the loan. There are sometimes advantages to going down this path, but overall these lenders can be risky to the borrower when economies aren't doing so well.

 

I appreciate all your advice.
You are all fine people who are so kind to share your knowledge with others.

I will instead have single securities on each loan.

 

Another reason not to Cross collateralise
Can the bank withhold sales proceeds to offset a second loan?