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crossing loans

Discussion in 'Finance & Banking' started by Triu, 12th Sep, 2006.

  1. Triu

    Triu Well-Known Member

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    Hi can someone please advise if this is correct. My broker said that cross collaterising my loans to get my first investment property was okay. He also said that in the future it is still okay as it is easier to track loans for Taxation purposes etc. As it is a clear path to follow.

    But what if i want to have multiple loans is that a problem for the future and what if i want to put buy IP's in a HDT.

    can any one please show the advantages and disadvantages!

    thanks
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Advantages of cross-collateralising loans: none

    Disadvantages of cross-collateralising loans: too many to list

    :D

    Sorry ... being a bit facetious. Some of our resident mortgage brokers would probably do a better job of explaining the pros and cons ... but from my investors point of view - it's all about control. If you cross-collat, then you effectively hand control over the portfolio to your bank and make it just a bit harder to get the best deals and to change things around if you need to in the future.

    The only benefit I can see is when you first start - if you can't get the finance on a second IP without cross collateralising, then perhaps it is worthwhile.

    I'm not sure you're going to be able to extract the most equity from your portfolio if the loans are all with the same lender and all cross-collateralised.

    Control and flexibility is the key for me - which is why I prefer stand-alone mortgages across multiple lenders with variable rate IO loans. This way I get to do everything on MY terms, and I have the flexibility to move my loans elsewhere at any time without penalty (other than refinancing costs).

    Of course, if you are the type who won't change things much - and is likely to maintain the same loan for at least 3 years without doing anything more like drawing out equity and such, then cross-collat and/or fixed interest might work just as well for you. Comes down to strategy I guess.

    Right now I'm refinancing my entire portfolio, and swapping lenders again because we've reached the maximum exposure that the mortgage insurers will accept through my current lenders ... so time to find a new bank who uses a different mortgage insurer.

    If your strategy doesn't involve maximising your borrowings, then there's probably nothing wrong with cross collateralising.

    If you cross collateralise to get your FIRST investment property, then this suggests that you already have a loan for something like your PPOR.

    DO NOT cross collateralise your PPOR and an IP without first getting good tax advice from a qualified tax advisor (not your broker). Depending on how the bank sets up the loans, you might have some issues at tax time.
     
  3. Redwing

    Redwing Well-Known Member

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  4. Tropo

    Tropo Well-Known Member

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    Triu,

    I have been told a lot of times to avoid cross-collateralisation.

    Also - watch out for 'all monies' clauses.
    The lender is allowed to secure 'any' outstanding loans you have with them ( home loan, credit card, personal loan ect) against the value of the mortgaged property, whether they have advised you of this directly or not !!.
    :p
     
  5. Triu

    Triu Well-Known Member

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    Hi Sim thanks for the info. Yes i do have an existing loan on my PPOR. I also have a Loan for my IP with a separate LOC set against it so i can pay for any shortfall in rent etc.

    Maybe i need to talk to another broker! My broker says that there is a lot of hype about cross loans etc. How do others set up there loan structures so as to avoid cross loans and can it be done if i buy another IP in a few months?
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Easy ... one property = one loan, no other property or assets provided as security.

    ie. each loan is completely stand-alone ... I actually have my loans spread across multiple lenders, although I have multiple loans with some lenders.
     
  7. Rolf Latham

    Rolf Latham Well-Known Member

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    Hiya Triu

    Get another broker :O). This is my opinion only, but he/she isnt only short changing YOU, but they are also restricting their own future income potential. Looks like a lose lose to me.

    Just this week, again having to sort out a mess where a client has 4 mills equity, in 8 Ips, all crossed.

    We will have it all sorted...........one day................ Rarely is cross coll in your favour.


    ta
    Rolf
     
  8. shake-the-disease

    shake-the-disease Well-Known Member

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    Actually I think it's more: One loan secured by one (and only one) property. Nothing wrong with having multiple loans secured by a common property, it is having multiple properties securing a single loan that is x-coll.
     
  9. Triu

    Triu Well-Known Member

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    Thanks Rolf i will have to organise something later on. I am attending the Renokings property workshop in October 06. after that i will have more information on how to structure things. Do you have experience in obtaining finance for HDT's also? Do you have email address i can email you my current situation and see what you think.

    thanks
     
  10. APerry

    APerry Active Member

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    Hi Triu

    The one advantage to x-coll is that "sometimes" it can assist you to negotiate a larger discount. From what you have posted I don't think there is any benefit to you. As has been stated previously, get another broker.

    Regards
    Alistair
     
  11. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Yeah, and I do have that myself ... split loans or multiple loans on one property is not a problem.
     
  12. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    In my experience you are likely to be able to find a loan with another lender at a similar discounted rate that doesn't involved cross-collateralising.

    ... and cheapest rate isn't always better in my opinion ... flexibility and maximising borrowing power is.
     
  13. APerry

    APerry Active Member

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    Hi Sim,

    When lenders are pricing loans (for negotiated rates) they apply a fixed and variable cost, therefore if you have one loan for say $800K secured by two properties it is easier to get a negotited discountt han it is for 2 loans of $400K. Having said this, for most cases what you have said is true and I agree with you that rate isn't always the most important determinant.

    Regards
    Alistair
     
  14. Nigel Ward

    Nigel Ward Team InvestEd

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    I'm much more relaxed about x-coll than most here it would seem.

    The goal is to get the greatest value of growth assets as soon as possible and let them grow over time. That creates wealth.

    To get more assets sooner we all need to borrow.

    Surely the security structure that gets you the most money from the bank/s as soon as possible is the one to use? If that means you have to cross-collateralise, then so be it. Altho I tend to change banks like some people change shoes... :D

    An exception to this may be to keep your PPOR with a different bank to your IPs.

    Ultimately be guided by an expert broker like Rolf. ;)

    Cheers
    N.
     
  15. Triu

    Triu Well-Known Member

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    Hi rolf do you have a email i can contact you on i need to talk to a broker who really understands finance for acquiring as many IP's as possible.
     
  16. Davidr

    Davidr Active Member

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    Triu,

    Rolf's hompage is in his signature. On there you will find his contact details.....

    :D
    David.
     
  17. Dep

    Dep New Member

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    Rolf (ASAP) is complete waste of time - I have been his customer and he is very unreliable . Please Look for other better brokers- I wouldn't recommend Rolf Latham!!