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Cross-collateralization
What is it and why is it bad?
Cross-collateralization is an important loan structuring issue of which many property investors are not aware. Knowing the implications of cross-collateralization is crucial to developing a long-term property investment portfolio.
There will be a section in the body of the contract which will note the addresses of the properties over which the lender holds or will register its mortgage.
There are several important issues to consider:
- Loss of Flexibility
- Increased Complexity
- Limited Product Choice
- Changing Lenders can be Difficult and Costly
- Equity Access
How can HAS Properties Help you avoid cross-collateralization?
Whenever possible, insist on stand-alone loans and securities. Take out separate loans for each new property with the deposit and costs coming from an established line of credit or offset account.
While I know a bit about finance and how it relates to property, you should always seek the opinion of a proficient finance broker who can provide assistance with refinancing or restructuring loans to avoid the potential shortcomings of cross-commercialization.
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