If you have more than one loan with a lender the chances are those loans are cross collateralised.
What that means is you have two or more securities against one mortgage.
So that might be two houses or two investment properties against the one mortgage.
Everything is intertwined.
So what are the risks and the rewards of cross collateralisation and should we go after it
or should we avoid it?
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is crossed colonialisation so cross collateralisation I noted beadwork but basically what it means
is your securing one's own against two or more properties so this means that both properties
at acting as security for the one live now this can have its benefits Air Canada have
its downside instruments relief from everything that I hear the downside wholly outweigh the
outsides across globalisation so is important to understand what the recent rewards are
you can make a decision as to how to best intertwine your portfolio and how best secure
your financing so let's have a look at the research lets look at the doom Englewood home
the first race is when it comes to valuations when you have crossed collateralised your
property an individual valuation does not give you perfect access to the available equity
in that property because if you have one good valuation and one poor valuation what is going
to happen is those two will be meshed together and that valuation is going to even out so
what this means is that it's highly likely that by cross colour analysing your Ashley
going to minimise your quarrel or equity to let it really that you are able to borrow
so because you've got if you had your loan separate any behaviour properties separate
secured against different lines if you have one property that had gone up in value or
we just leave that to the site we can't do anything with that but if you go probably
that are up and down significantly which enters are that you can be able to borrow against
that property to the maximum amount that you can but if those properties are mesh together
again the value of the property that now is basically going to be bobble equities going
to be almost halved because of the property.the law so if you want explaining right your portfolio
you will have access to as much equity as possible then it might be worth avoiding cross
globalisation and look it's pretty easy to do to avoid it weekly mortgage for a couple
for details but basically by ensuring that each property has a different wind are a different
line with a different lender void that pretty easily risks number two is that you have no
control over sales proceeds and this is probably the scariest thing I think as what it means
is that if you sell property the bank can entice the proceeds from the sale and they
can do with an almost whatever they want they can pay off the mortgage that on that property
and then release the rest of the funds to you or they could pay the loan off the first
mortgage and take any profit you may enforce you to pay down the debt on your other existing
property that is with them and this has happened to many investors in Australia and they have
been stung by this many investors will sell their property except access the equity maybe
they will go ahead and reinvest maybe they will use it to pay for their lifestyle silicon
cutback from work to be it maybe they will use it to pay medical fees because they have
some urgent medical need now that really matters how they will use it because what has happened
to these investors there sold their property they gone to look into their bank account
and never noticed that there's a huge chunk of money missing and that's because the bank
has taken to pay off the other line which the property was securitised against cross
collateralised against so that can go obviously caused major issues they can also risk number
three is being tied to a single lender so because you've got so many properties all
with the one lender can then be hard to get those properties out that lend out to a different
lender wrist number four is reduced negotiating power because the lenders know that once you
have alone with them getting out of alone and changing hands and going through all that
is quite difficult so this is elegant cost you an exorbitant amount of money button across
you time and effort and another they are unlikely to do that so this mail like negotiating power
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may charge you higher fees which is risk number five risk number six is you could have to
march unneeded security against your property so a lot of cases any loan to value ratio
that is 80% or below only charge lenders mortgage insurance but often in the cost cross collateralised
you might have paid off the majority of your home and have this huge amount of equity they
also have an investment property but they both secured against the one my own and you
just got this huge amount security and again that's not like the huge risk that could cause
issues of your going spend your portfolio and last race is you may be forced to sell
so view so one property and doesn't fully pay off the mortgage then the banks can force
you to sell that other property that you have now obviously if you're in a situation where
property doesn't cover the mortgage was anyway even if they're not cross securitised across
collateralised you may suffer so your property anyway but basically the banks have more control
if they cross, rise sell or@or we will get some negatives and let's face it there are
some pretty hectic negatives the valuations and the no control of the sales proceeds are
probably to be ones they need to think about what are the rewards are there any rewards
will yes there are so if you have cross globalised then you are feeling pretty depressed right
now that my there are some benefits firstly the first benefit is that is the potential
for easier credit may not necessarily do not automatically have easy access to credit because
your crosses utilising your properties but you may have easy access to credit and going
with a separate window BT mortgage broker about this because they will know more about
whether this is actually the case of your situation you can check out some of the brokers
that I've interviewed although I recommend I run on property.com.au/brokers benefit number
two is it can be beneficial in all properties have grown just a little bit so if you've
got a quite a substantial portfolio and you seen growth in your properties but not significant
growth maybe $5000 maybe $10,000 was he just had one property Colin worth going to the
effort of trying alone for the borrower for equity and that which is only an bit couple
thousand dollars review prosecute ties everything he got five properties in Elgar 10 grand let
an increase in $50,000 and so it may therefore be easier begin a quick loan enter actually
access your Borel equity and what number three is that they can make things easier to manage
because you got one lender which you access from one online banking it can makeÉ Easier
for you to manage rather than having to navigate all of these different accounts with all of
these different lenders and as you might know it often takes time for a transaction to go
through so might take a day or two before money goes from one account to the other but
there altogether attends the happen so much faster to this race this rewards of cross
collateralised from everything that I hear the benefits don't outweigh the negatives
of cross polarisation so in most cases most investors do go ahead and try and avoid this
as much as possible but obviously so professional speaking mortgage broker or financial adviser
about what situation is going to be best are you you are more videos articles or pod cast
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head over on property.com.au/124 episode 120 4 AM till tomorrow remember that your long-term
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