Cross collateralisation - the pros and cons

Cross collateralisation (also known as cross securitisation) is where a single or multiple loans are secured by multiple properties you own.

Your home - the collateral, is what you offer the lender as security when applying for a home loan.  Depending on how your loan is structured, the loan can be secured one of two ways:

1. by a single property you already own as a ‘stand alone’ loan, or

2. secured by multiple houses in your portfolio which are ‘cross collateralised’.

There are a number of pros and cons to consider when structuring a loan this way, these are outlined below.  Remember that these may differ depending on your individual circumstances.

Pros

  • It can be easier to deal with a single lender 
  • As equity builds, you can use one property to assist in the purchase of the next without using your own cash 
  • Access to your equity can be easier to access.  You do not have to apply with a number of different lenders in order to extract equity from each property 
  • Many lenders will price your interest rate based on the total loan size.  Therefore, a larger loan size with one lender may lead to discounts on charges and interest rates

Cons 

  • If your lender decides they have too much exposure to you as their client, they may refuse you further loans
  • A single lender may not have the best products and/or rates to suit all situations
  • If you sell off one property it might mean you need to have the whole loan portfolio restructured
  • A lender will prefer as much security as possible to reduce their risk, so if given the opportunity they will obtain multiple properties which may not be the best proposal for you.

A mortgage broker can provide further details around the loan structure that best suits your circumstances.

If you are in the market for an investment loan or would like to discuss the structure of your next application, please call Ashley now on 0425 826 967 or 9432-2121.



Posted in: Property investment

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