To cross or not

Hi all

Something that had me thinking after my PB mentioned it to me. The PB argued that one is better of crossing two properties and subsequent properties because of less account fees and more equity combined.

Example given
PPOR equity 20000
IP equity 15000
Ip equity 25000
This is a total of 60000 in equity. The PB went to great lengths to show me that seperate lenders would weaken my position as i would have this equity indivdually where by by being crossed a 60000 equity drawn can get a better type property or more deposit.

Like to get your thoughts.

regards
BC
 
Two things

1. It can be very difficult when you reach the point that you can't get any more loans from your bank to be able to use the equity elsewhere. That's one of the reasons banks like x-coll so much- it effectively locks you in. I've been going through the difficult path of uncrossing.

2. You can achieve the same by getting equity loans (say LOC) and using the single amount as deposit for your next purchase.

Having said that- I would not have been able to get my flock of bats without x-coll dues to a mortgage insurance situation.
 
Hiya BC

You can have both loans with the one lender without having them Xcolled (xcept some that have it as a policy). Weakened position alos must take into acct no bargaining chips left, like when you are xcolled, it can be slow, painful and sometimes impossible to shift them

The ATO will also tell you what suits them if you ask for advice.

ta

rolf
 
bonecrusher said:
Hi all

Something that had me thinking after my PB mentioned it to me. The PB argued that one is better of crossing two properties and subsequent properties because of less account fees and more equity combined.

Example given
PPOR equity 20000
IP equity 15000
Ip equity 25000
This is a total of 60000 in equity. The PB went to great lengths to show me that seperate lenders would weaken my position as i would have this equity indivdually where by by being crossed a 60000 equity drawn can get a better type property or more deposit.

Like to get your thoughts.

regards
BC

In an ideal situation, you might have 3 different loans at three different "banks", for flexibility and to leverage one against the other.

If each bank uses,say, 80% as LVR, your net equity position would be the same if you used 3 banks or 1 bank.

The problem arises where you want to use the remaining equity in all 3 properties to support a new loan. If the remaining equity is split across 3 banks, you are looking at second mortgages, which add to cost, and the equity available will be discounted for the new loan. In your case with equity available of $60,000, you might find this is discounted back to,say, $20,000, if you had your 3 loans across 3 banks.

Rolf's idea of individual loans with seperate security for each with one bank is good.
Recognise that mortgages generally have a clause that covers not only the property mortgaged, but all personal belongings, so in effect, if one deal went belly up, the bank can still attach to any other secuirty/assets they may be holding.

GarryK
 
Hi
"I am going to use Brenda s tact here"
Please be gentle with me.
I have done a search on the x coll threads, lots of reading.As the subjects are wide and varied its a bit hard to get a real understanding of it.
However if one of you finance gurus could answer simply a couple of questions for me on X coll it would be greatly apreciated.

What are the main negatives of x coll?

What are the benifits of x coll?

My MB tells me it,s not a problem and all and it,s the way to go.

We are actually looking at selling our PPOR and all our ip loans are x coll with our PPOR tied up in it all.
How with this affect us if we sell?
If we sell the PPOR we may pay out one of our ips and live in that, which is actually worth more than our PPOR how will this affect us?
sorry for so many what if s it,s just sooooo much easier to get unbiased advice on this forum which is priceless!!!
with thanks yadreamin
 
Hiya

Im no finance guru, but will strongly suggest (and at the risk of repeating myself myself:) that whenever a banker suggest that something isnt a problem in regard of equity contribution, that one takes this with a grain of salt, just as one would taking advice from the ATO on minimising your taxes.

Just seven reasons faced by my clients with cross coll have been :

1. Bank holds all your equity. Says no more money, youre at your maximum service level. Release of property may take many weeks to months or at an extreme the lender forces you to take ALL the loans to another lender.

2. Bank holds all your equity and you have fixed loans. Bank Says no more money, youre at your maximum service level. Release of property may cost squillions because you need to break one or more fixed rate loans.

3. Bank holds all your equity. Says no more money, youre at your maximum service level. Loans once were all at 90 % of lvr, now at 75 %. You want to revalue to 90 % and only pay lmi on the new money. Sorry borrower, please go to another lender and pay new mortgage insurance

4. Bank holds all your equity. LMI says no more money, youre at your maximum exposure level. Sorry borrower, please go to another lender and pay new mortgage insurance

5. Bank holds all your equity. Bank says your estimate of valuations are rubbish, we arent going to give you any more money. Sorry borrower, outcomes as per 1 to 4 above.

6. Bank holds all your equity. Mr and Mrs decide to split assets after divorce. 1.3 mill fixed rate loan crossed over several properties. 63 000 break cost to split it all up and sell some off

7. Bank holds all your equity. You run into financial difficulty, BUT you have lots of equity. You try and move one of your properties to a fast settling no doc lender to release funds and get you of trouble. Bank wont release security, they smell a rat, slow the release of the property, and within 60 days you will have a judgement against you and the sheriff at the door.

Now, lets weigh this against the benefits of xcoll .

1. Maybe reduced fees, UNLESS you do a fair few revals in which case your entire portfolio needs to be revalued every time.

2. Xcoll allows you to pool little bits of equity. Most loans will allow top ups of as little as 10 k

3. Sometimes its the only way the lender will do the deal, and in that case xcoll is better than no loan.


Dunno bout you, but in MOST cases xcoll doesnt present a good argument.

ta

rolf
 
Thanks Rolf
WOW is about all l can think of at present. :eek:
Some serious sorting out to do this week l think. :confused:
It does make it difficult when my morgage broker says its not a problem. :mad:
l can see that he may not be very co operative if l want to change things.[sure hope l am wrong about that] :rolleyes:
So to keep investing in ips how does one avoid the x coll.?
Cheers yadreamin
 
Hiya

Im not rubbisihing your broker.

I dont know your personal circumstances well enough to comment, very much general advice only.

What lender are you with also has an impact on the seriousness of this stuff, who is yours and have you paid lmi on any of your loans ?

ta

rolf
 
Rolf.
firstly thankyou for your unbiased infomation. :)
No l never thought for once that you were rubbishing my current broker.

I am financed through Westpac formally Challenge.
No l have never had to pay morgage insurance.
cheers yadreamin
 
Hiya

With WBC its not as bad as it is for eg with NAB.

WBC generally dont ask nor force xcoll, and if your on the pro pack the vals come free anyway's.

Id be looking to break it up as required when doing another deal, rather than breaking it up just to break it up, since this will cause some not needed hits on the CRAA and aggravate the broker that put it together.


ta

rolf
 
I'm x-colled now with NAB. I did it with full knowledge of the consequences- it was the only way though that I could get my block of flats. But getting out of the x-coll has been a long slow process- and it's still happening.

If your MB is suggesting x-coll, it may be that (s)he is one of the majority of MBs who does not understand the particular needs of property investors- and especially those who want to leave thir future open for expansion.
 
Thanks guys
l am making a list of questions and maybes and scenerios to put to my broker this week.
l am also seeing my accountant this week so maybe within the next 10 days l will have a much clearer picture and better understanding of
'where we are at now'
if l need clarification or further info l will post again.
However how does one continue to buy ips without x coll?
Is a large deposit required?
cheers yadreamin
 
Hi all

Yadreamin

I am like Geoffw going through beginning of the slow process of undoing a x-collat with my PPOR this is with the NAB. At the time it was the only way but NAB was more flexible too and they have become very tight based on my conversations with them.

What really got up my nose was that if i bought another IP with them as lender that would also have to be x-collat with my PPOR and 1st IP.

A model which i have seen is
Loan on IP
Loan on PPOR (if applicable)
LOC as a MF(master fund)
This MF is used as a deposit with another lender for a 80% loan say with no LMI.

Some say this is a sound model to work with.

Another consideration is that if you refinance the lot with another lender, because you are crossed the stamp duty is paid on the total loan. So is the LMI if you needed it.

regards
BC
 
1 quick question

Parents have a house worth $580k with $30k remaining on loan.
they want to buy investment property worth $420k with the idea of selling within 8years.

NAB wants both as security.

is X collat. a good idea here, will it impede in the sale of the investment property when the time comes?
 
IMHO XColl is a bad idea in this case lino.

They have heaps of equity, use a LOC, there's no need to Xcoll.

Cheers,

Aceyducey
 
Hi All
If you find X-coll is the only way to do the deal you can always uncross everything down the track by refinancing with another lender.
Simon
 
unsure...

Hiya

Im no finance guru, but will strongly suggest (and at the risk of repeating myself myself:) that whenever a banker suggest that something isnt a problem in regard of equity contribution, that one takes this with a grain of salt, just as one would taking advice from the ATO on minimising your taxes.

Just seven reasons faced by my clients with cross coll have been :

1. Bank holds all your equity. Says no more money, youre at your maximum service level. Release of property may take many weeks to months or at an extreme the lender forces you to take ALL the loans to another lender.

2. Bank holds all your equity and you have fixed loans. Bank Says no more money, youre at your maximum service level. Release of property may cost squillions because you need to break one or more fixed rate loans.

3. Bank holds all your equity. Says no more money, youre at your maximum service level. Loans once were all at 90 % of lvr, now at 75 %. You want to revalue to 90 % and only pay lmi on the new money. Sorry borrower, please go to another lender and pay new mortgage insurance

4. Bank holds all your equity. LMI says no more money, youre at your maximum exposure level. Sorry borrower, please go to another lender and pay new mortgage insurance

5. Bank holds all your equity. Bank says your estimate of valuations are rubbish, we arent going to give you any more money. Sorry borrower, outcomes as per 1 to 4 above.

6. Bank holds all your equity. Mr and Mrs decide to split assets after divorce. 1.3 mill fixed rate loan crossed over several properties. 63 000 break cost to split it all up and sell some off

7. Bank holds all your equity. You run into financial difficulty, BUT you have lots of equity. You try and move one of your properties to a fast settling no doc lender to release funds and get you of trouble. Bank wont release security, they smell a rat, slow the release of the property, and within 60 days you will have a judgement against you and the sheriff at the door.

Now, lets weigh this against the benefits of xcoll .

1. Maybe reduced fees, UNLESS you do a fair few revals in which case your entire portfolio needs to be revalued every time.

2. Xcoll allows you to pool little bits of equity. Most loans will allow top ups of as little as 10 k

3. Sometimes its the only way the lender will do the deal, and in that case xcoll is better than no loan.


Dunno bout you, but in MOST cases xcoll doesnt present a good argument.

ta

rolf


Hey Rolf,

I'm a relatively new mortgage broker in the industry and I'm just struggling a little to get my head around the cross collateral posts in this site.

I refer to your above comment and I'm struggling to find the connection to how your reasons relate to cross collaterlization.

1. bank says your at your limit - is this not the case whether you have multiple banks or not as they assess you on total debt not just debt held with them. and if the current bank wont allow you to service the full amount then just take out the depoist and use a new lender? if you can't service 20% with one lender you woudlnt be able to service 100% with any lender.

2. breaking any fixed loan. why would you need to break the fixed loan. again if the existing bank wouldnt service the full amount take out the deposit as another split and use a new lender.

3. Potentially an issue as banks have lowered their LVRS - however could cash out.

4. Only 2 mortgage Insurers in Australia -

5. valuations are independant - x bank wont value a property higher than Y bank

6. a couple has a divorce and owns multiple properties with multiple lenders all on fixed. Wont the exit costs be the same once you add them all up.

7. not sure about this one because the majors at least have hardship arrangements where you can freeze your payments if your are struggling. We have not had too many issues with mortgages being discharged (send them a form) and there is always the option of Fast Refis where there is no discharge

DISDAVANTAGES

Only disadvantage I can see is that if you default the bank might put both properties on the market and whatever sells first sells for them to get their money back. (they have rights to all your possessions anyway but would have to sell the security property first before going after other assets)

One other might be once you reach certain loan amounts the banks have higher LMI costs.

ADVANTAGES

discounts - once you borrow over 800K - 1 Mil you can slightly better discounts. (0.8-1)

Potentially Cheaper Admin Costs - 1 Pro Pack fee.

I also spoke with a few Bdm's and they have told me that I can structure deals to be separate with the same bank so they are not linked in any way.

Im not trying to say anything either way - I'm really just trying to understand for myself why it isn't a good idea - and if you can structure a deal as separate with the same bank what is that problem with that??

Cheers Carl
 
Hi Carl

Welcome , and there are always at least 2 ways of looking at things, always like to chat about this pet thing :)

Hey Rolf,

I'm a relatively new mortgage broker in the industry and I'm just struggling a little to get my head around the cross collateral posts in this site.

I refer to your above comment and I'm struggling to find the connection to how your reasons relate to cross collaterlization.

1. bank says your at your limit - is this not the case whether you have multiple banks or not as they assess you on total debt not just debt held with them. and if the current bank wont allow you to service the full amount then just take out the depoist and use a new lender? if you can't service 20% with one lender you woudlnt be able to service 100% with any lender.

Different lenders assess their own debt and the others debt at say PI at assessment rate. Other lenders may assess the other lenders at actula ( IO at current 6.2 or so) vs the 25 year PI at 8.75. HUGE difference.

Then there is the one lender expsoure



2. breaking any fixed loan. why would you need to break the fixed loan. again if the existing bank wouldnt service the full amount take out the deposit as another split and use a new lender.

If lender x ( being the mortgage holder) wont give u the deposit, the ONLY way is to MOVE the property and the loan(s).
[/QUOTE]


3. Potentially an issue as banks have lowered their LVRS - however could cash out.

if the lender will only go to X LVR, you cant cash out. Case in point, ANZ going from 95 % 90 % max, et al

4. Only 2 mortgage Insurers in Australia -
STGLMI, WLMI, GE, QBE, Wide bay and a bunch of other options such as INGs REF

5. valuations are independant - x bank wont value a property higher than Y bank

You are right. Valuers are human...........I have had up to 400 k difference between different valuers.....its just an opiinion filtered through some facts. Indeed valautions is a tough gig !


6. a couple has a divorce and owns multiple properties with multiple lenders all on fixed. Wont the exit costs be the same once you add them all up.
A single loan over x properties. You are right, if all the split loans are for the same rate, maturity period and are all fixed, an unlikley scenario, since most will spread the maturity periods a little.


7. not sure about this one because the majors at least have hardship arrangements where you can freeze your payments if your are struggling. We have not had too many issues with mortgages being discharged (send them a form) and there is always the option of Fast Refis where there is no discharge

In theory this works, In reality it doesnt. Once your loans statements are showing sick performance, AND you have entered " into an arrangement", best of luck with trying to find a mainstream funder that will refinance you to get you out of what should be a simple thing. Often at this point the house of cards comes down................

DISDAVANTAGES

Only disadvantage I can see is that if you default the bank might put both properties on the market and whatever sells first sells for them to get their money back. (they have rights to all your possessions anyway but would have to sell the security property first before going after other assets)

One other might be once you reach certain loan amounts the banks have higher LMI costs.

See, thats where the TEARS of grief and frustration and financial loss and lost opportunity of Real life experience meet. One doesnt have had to have the experience personally, its bad enough when its one of your flock.

In any case, we arent talking here of 2 properties xcolled..............sort of a bit further down the portfolio when it really does make a difference.

"The chains of a habit are too weak to be felt until they are too striong to be broken"



ADVANTAGES

discounts - once you borrow over 800K - 1 Mil you can slightly better discounts. (0.8-1)

true
Potentially Cheaper Admin Costs - 1 Pro Pack fee.
true

As I said in an earlier post today,you can quantify the savings, but often you cant adequatley quantify the risk.

I also spoke with a few Bdm's and they have told me that I can structure deals to be separate with the same bank so they are not linked in any way.

yes thats true. Im NOT an advocate of one IP one bank...........I mean with clients that have 40 + IPs.........how would that work ? Bank BDMs generally are bank trained and tend to need to look after the lender, while there are many good ones, the average ones care about your clients' financial future as much as the ATO does.


Im not trying to say anything either way - I'm really just trying to understand for myself why it isn't a good idea - and if you can structure a deal as separate with the same bank what is that problem with that??



Cant recall that this was said, there isnt a problem with that, its the Xoll thats the issue ( providing more than one ..and often several securities to secure one or more loans) rather than having each property self secured

Over to you, or anyone else that cares to keep flogging this very dead horse

( BTW, xcoll has its place, but its not in general loan structuring)


Cheers Carl[/QUOTE]
 
I tend to agree with Rolf. I guess after you have many clients going through restructuring their loans, you will encounter these problems. Usually its breakup of partnerships and clients are stressed enough to start with.
 
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