Using same lender but not cross-collateralised - benefits?

Hi Forum experts!

So up until now, I have understood that it is usually best to avoid cross-securing loans, but some recent discoveries about the "all monies clause" has me confused.

This is a first IP purchase, and our paid off PPOR will secure the deposit loan and costs ,in the form of an LOC, and the new IP will secure the remaining 80% loan amount. However, it will be the same lender, as the rate is much lower if borrowing over 700K across all loans.

Given the major bank we are using will likely have this "all monies clause" in the contract, what exactly is the benefit in not cross securing?

 

The all money's clause is most likely only used if you were to default.

Just say your IP is a property that the lender decided they no longer like, they change their policy and decide max LVR is now 50%.

You decide to sell your PPOR to use the cash to upgrade. Upon selling your crossed PPOR, the bank will take as much funds as they want, reduce the IP debt to a level they're comfortable with and give you the change. You no longer have enough cash to put toward your new PPOR, or if you do, your LVR is way up and you've got a huge non-deductible debt.

Long story short, if you're x-coll you don't have control of your assets, the equity or your cash if you sell.

 

I've been in the investment game for almost 20 years and in finance for 13, I'm not aware of a lender executing the 'all moneys clause'. It certainly is real, but if you keep making your repayments it's not a problem.

Cross collateralising would make the loan process a little easier (mostly for the lender or broker) but there's no benefit to doing it. There are any number of significant problems with it however, outlined in the following post:
Cross collateralisation - 10 reasons to avoid

The bottom line is cross collateralising puts you at a huge disadvantage and has significant benefit to the lender. It's rare that there's a need for it so it's best to avoid it. If you own your PPOR outright, there's no cause for it at all.

 

See
Legal Tip 130: What is an All Monies Clause? https://propertychat.com.au/community/threads/legal-tip-130-what-is-an-all-monies-clause.10694/

 

You can set up the two loans with the one lender and still avoid cross coll.

Technically - the bank could still use the all monies clause but having said that -there's other benefits to avoiding cross coll.

For instance - it's easier to get an individual property revalued for an equity pull.

If you sell a property - you simply pay out the loans linked to it rather than having the bank dictate where the money goes (sometimes they'll get you to reduce the debt level on properties that the sold property was crossed up with).

If you decide to refinance one property - its a lot easier when said property isn't tangled up with others.

All in all - there's no huge issue staying with the one lender for both properties (it's a structure I set up all the time) but I'd still avoid crossing up the loans.

Cheers

Jamie

 

Thanks everyone. Very helpfull as always