Is cross-collateralization good or bad? e.g If I go with cross-collateralization, one of the bank is offering me consolidation of 4 of my loans which are currently with 3 banks and at a better rate. Should I take that offer?

Hi Shireesh,

That is a brilliant question. My short answer is no. Cross collaterilisation is not a good path to go down. In short should you wish to sell one of the properties later down the track the lender does have the option of insisting on a valuation being conducted on the remaining properties to ensue the there is still enough security value left to secure the remaining debt for example keeping the LVR (loan to value ratio) at 80% they can ask for the loan to be paid down from the remaining funds of the sale.
In order to offer you a competitive rate the lender does not need to cross collateralise the loans or properties. They can simply offer you three stand alone loans for each property. This should not affect the rate.
I hope this helps & please feel free to contact me should you wish to discuss further offline.

Well said Rebecca.

I know of at least 1 bank where their policy if there are multiple securities is they need all securities to be cross collateralised but there are many lenders out there that dont and still have great rates and service for you to choose from.

It is easier if you can keep each property separate but obviously if you need the equity in 1 or more properties to lower the total loan to value rario (LVR) to get the good rate and you understand the consequences in the fututre should you want to sell then you should do what is right for you and your family but I would encourage you to get a 2nd opinion from a debt specialist.

Hi Shireesh,

The Bank’s love sticky customers, by that I mean customers who have placed all of their facilities with one bank thus making it hard for customers to leave.

If your short–mid term strategy is to sit tight on your current portfolio, then perhaps the risk of placing all of your eggs in the one basket may be worth the reward. That’s something that you and your finance broker need to weigh up

If your strategy is to sell or acquire additional properties, you risk limiting your options to the credit policy and capacity testing of just the one lender.

Per the comments by my peers, you’d be well advised to get a second opinion. You should also call your current lenders and ask them to match the proposed rates.

Have a great weekend,
Gerry Ardesi – 1800 LOANCO

Yes and no is my answer. Again as I always say in my answer on Echo, what the strategy? If you have no strategy and fell into a situation you have then what's the downside is the next question you ask yourself. Rebecca is right that if you sell it might trigger a revaluation. But make sure you have every loan with a different bank. I don't believe 4 separate loans with the same Lender is any smarter than all in one bucket and cross linked. If you're investing it then boils down to access to equity. If you have loans with separate banks accessing equity is painful. You end up with many small 'deposit' loans and it can become a mess. I decided to cross link with one bank for 32 houses I bought over 3 years because I needed one relationship and after 15 houses there wasn't enough lenders anyway. The great benefit to me was speed to access money. Having a portfolio manager meant she could access equity fast in my other properties at zero cost. Again, build your strategy first, then your structure, then the solution is clear and obvious S-S-S.

Hi Shireesh, if all the loans are cross secured or individually held with the same lender it makes little difference as long as you have the splits structured correctly for taxation purposes.

There is a little known clause in the background meaning essentially that a lender can take from one account to pay off another debt you hold with them .. so the myth that seperate title with the same lender somehow protects one property in case of a default on another property is wrong... its more a matter of timing.

I think you should review what rates they are offering as a lender will never give you the cheapest deal in the market.. and not even the cheapest they can do all the time.. happy to discuss.

Regards Ariel