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Question about loan security

Discussion in 'Property Finance' started by proper_noobie, 16th Dec, 2015.

  1. proper_noobie

    proper_noobie Well-Known Member

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    I've read countless posts not to cross collateralize loans and the reasons make sense.

    If each loan is untied without crossing, how do you come up with the 20% deposit from existing equity? Or are you meant to use only one property (eg PPOR) as the security for the purchase without crossing others?
     
  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    You release equity in one or more properties. It's no different to releasing equity if they were crossed.
     
  3. albanga

    albanga Well-Known Member

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    Multiple cheques.
     
  4. Travelbug

    Travelbug Well-Known Member

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    The deposits could come from your PPOR (so securities dy the PPOR). Then you take out a separate loan (tied to the IP) for the remaining 80%. When you buy as new IP do the same. You may have a LOC on your PPOR to take the deposits from.
    So each loan is securities only ny the IP you bought.
    Be careful when getting equity out of IP's or refinancing. Comm tried to put ALL IP's on every loan, so in effect crossing them all. Then they tried to tell me they weren't crossed. haha! I can read damn you.
     
  5. proper_noobie

    proper_noobie Well-Known Member

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    Does cross collateralization mean each property is secured with each other?

    To use an example, a 2 property portfolio, one PPOR, one IP which has gone down in value, does this mean:
    - if crossed, the bank may prevent you selling either property without you covering the difference first,
    - if using equity as security, you're free to sell the IP without interference from your bank (then repay the loss in your own time)?

    If your PPOR is used as un crossed security and you sell it at a later date, do the banks take the portion used as security, then leave the other loans as stand alone?

    I hope they're not silly questions...
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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  8. proper_noobie

    proper_noobie Well-Known Member

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    Thank you all once again. I didn't understand the distinction between crossing and using one as security, thinking it was one and the same.
     
  9. jpcashflow

    jpcashflow Well-Known Member Business Member

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    Hi Proper Noobie... this is a common question but all good. Try not to over think the situation!!!
    See the below example:
    Have you have three properties:
    Cross means: Property A B and C are all secured against each other = Loans are tied up = Nightmare.
    Ideal Option: A B C are separate and even though you might have all the loans with the one bank they are not used against each other.