Cross Collateralization Caveat Emptor
- Author Spiro Wiwf
- Published April 11, 2010
- Word count 394
Cross Collateralization Caveat Emptor
With the tightening Home Loan credit conditions in Australia, Leading Melbourne Mortgage Broker What If We Finance has seen an increase in banks attempting Cross Collateralize securities.
Cross collateralize occurs when more than one property is used as security to support a loan. Melbourne Mortgage Broker What If We Finance says "Cross Collateralization is often asked for the by bank in Property Investment scenarios and if possible should be avoided."
Typically in a Cross Collateralization scenario you have an existing property and wish to buy an Investment Property. In this instance the bank would ask for both properties as security. Leading Melbourne Mortgage Broker What If We Finance CEO Spiro Kolokithas says "in this situation the bank wins because they have both properties securing the Home Loan and in the event of default or bankruptcy the bank has more security than it requires. This is a win win for the bank."
A number of scenarios where Cross Collateralisation is an option are outlined below along with strategies to avoid cross collateralization.
Scenario 1- You have a property with significant equity but do not have enough cash to fund the deposit for the next property. Possible solutions include:
-
Borrow money using the first property as security. You now have funds to buy the property and the second house cannot be repossessed if you cannot pay the loan.
-
Use both properties as security. This is cross collateralization and if you default you can lose both properties. This should be avoided.
Scenario 2 - You have significant cash available and want to fund the next property investment. Possible solutions include:
-
Use the cash to purchase the next property. While it does not cost you interest this may not be tax effective and you may not be maximizing Negative Gearing benefits and you avoid Cross Collateralization.
-
If the first property is your principal place of residence then interest is not tax deductible. In this instance use the cash to pay down the debt on this house and maximize your borrowings on your investment property. In this instance you maximize the Negative Gearing and associated tax benefits. You should also not cross collateralize the securities.
As a Property Investor you can see that some complex situations arise when Cross Collateralization comes in to play. Contact your Mortgage Broker for further advice as each situation is different.
Home Loan redraw allows borrowers to reduce the total interest payable over the life of the loan. As a Property Investor you can see that some complex situations arise when Cross Collateralization comes in to play. Contact your Melbourne Mortgage Broker for further information.
Article source: https://articlebiz.comRate article
Article comments
There are no posted comments.
Related articles
- Costs of arranging a Mortgage in Spain
- Non resident Mortgages in Spain
- Effective Strategies for Paying Off Your Mortgage Faster
- How Does Equity Release Work?
- Florida First Time Homebuyer: The Indispensable Guide of Tips, Programs, and Resources
- How to Become Debit Free?
- Sellers Concession the Closing Cost Option
- Financing Short Term rentals with DSCR loans
- Why move to Roseville CA
- Simple Interest Mortgage Advantage
- Are Low Doc Commercial Loans available in Australia
- How to Obtain a Rural Agriculture Loan Quickly and Easily
- What is a Caveat Loan?
- Tips for improving your Credit Score before getting a Home Loan
- 3 Things To Look out for With An Equity Release Mortgage
- Manage your Debts by Refinancing your Current Home Loan
- How to Get a Home Loan with Unusual Employment or Income?
- 20 Effective Debt Consolidation Loans Tips with Bad Credit
- Tips for Choosing a Non Conforming Lender
- Why is a Good Credit Rating Important in Australia?
- Most Common Ways That People Fall Into Personal Bankruptcy
- How to Choose a Consumer Credit Counseling Agency?
- Consolidate Your Debts and Take Control of Your Finances
- How to get a Home Loan due to a Bad Credit Report
- Debt Consolidation Home Loans are a Solution to Multiple Debt Problems
- Facts You Should Know About Low Doc Home Loans in Australia
- No Doc Loans from Private Lenders
- Home Loans to Consolidate Debt for People with Bad Credit
- How Can I Get a Mortgage If I Have a Bad Credit History?
- Guidelines to Fix Bad Credit Effectively Through Dispute