Loan Tip: Uncrossing Crossed Colleralised loans

We all know that you should avoid cross collateralising your loans, but if your loans are crossed how do you fix the problem?

Cross collateralisation, or cross securitisation, is when 2 or more properties have been used as security for 1 loan. To fix this you must make sure that each loan is only secured by just 1 property.

Where the LVRs are under 80% this is relatively easy to do

Loan A is $360,000. Security is property A and property B
Loan B is $416,000 Security is property A and property B.

Property A is worth $750,000
Property B is worth $520,000

Just tell your broker or lender that you want to release security for each loan. For loan A you say you want to remove property B from the mortgage. The lender will then order a valuation and make sure the LVR will be under 80% = $360,000 loan secured by property A valued at $750,000 = 48% LVR.

Loan B is $416,000 with security of property be at $520,000 = 80% LVR

Should be no problem. The loans need not change at all, so this could be done with most lenders without causing a reassessment.

Where 1 LVR will be over 80% and 1 under

At the moment
Loan A is $360,000. Security is property A and property B
Loan B is $480,000 Security is property A and property B.

Property A is worth $750,000
Property B is worth $520,000

You will need to rejig the loans as follows
After
Loan A $360,000 to be secured by property A only
Loan B is $416,000 to be secured by property B only (reducing it to a max of 80% LVR of $520k)
Loan C is $64,000 to be secured by property A only (this is the amount loan B was reduced by)

Loan A is deductible against property A
Loans B and C are deductible against property B

This will cause a reassessment because you are paying down a loan and setting up a new loan.
Note that deductibility is not changed in this example as the overall loan amounts are still the same, it is just the security of the loans that is changing.

While you are at it access the equity to 80% LVR
Property A is worth $750,000. 80% = $600,000
$600,000 is the total available loans that would be secured against property A keeping the LVR at 80%.
Loan A is $360,000
Loan C is $64,000
These total $424,000 so the amount of available equity to use would be $600,000 - $424,000 = $176,000

Therefore
Loan D $176,000 secured against property A, deductible against the property it is used for.

All loan should be IO. Ideally loan D would be a LOC.


Where both loans will be over 80% LVR
Where both loans end up over 80% LVR it may be better to wait it out a bit longer. Changing security now could mean a new LMI fee could be charged.


What if one crossed loan is fixed?
The loan security can still be uncrossed without changing the loan term or amount.
However if the loan is over 80% and it is fixed then it may be better to wait for some growth to kick in and to reassess once the fixed rate expires.

 

Excellent write up. Finally great details on how to approach the problem and resolve it.

 

Thanks Terry, excellent post!

 

Good post Terry - something I was a victim of myself a while ago, great post for punters to refer back to.

Cheers Ivan

 

Great post

 

Believe it or not I crossed in the early days too.

 

Thank you terry for the explanation, I am looking to release some equity from a CC scenario

Fingers crossed

 

Great post. The addition to this should be that what many people are told by advisors of all sorts is to have stand alone deals, rather than cross securitised transactions, for asset protection in the event that things go pear shaped. The thing they they don't understand is that if things do go pear shaped, irrespective of whether stand alone or crossed, under their(lenders) Ts and Cs, they have the right to pursue you for outstandings where you have your securities pledged to them.

My theory is to use the power of leverage, when you have enough equity, remove ppor from all pledgings and continue with the power of leveraging under the one roof of a lender as you can get the better deal due to the overall portfolio held with that lender. I like cross securitization, allows me to borrow 110% with each new transaction as the old gradually depletes.

IMHO

 

Good post Terry.

Seems that the majority of uncrossing I do relate to the second example - ie. one above 80% and the other below.

Cheers

Jamie

 

For the legal side you may want to see my post
Legal Tip 8: Avoid Cross Collateralising Security Properties
https://propertychat.com.au/communi...ross-collateralising-security-properties.562/

 

Excellent post Terry.

For this and many other reasons is why when people ask me advice I sent them to SS first, it can be a very short university degree in the course "Bachelor of Property", specialising in whatever you like.

 

Excellent post Terry!

It's also worth mentioning that uncrossing can also be a good time to review lenders - there's no need to stick to the one lender unless you've got a fixed rate in place. For a large portfolio that needs uncrossing, spreading across a few lenders is usually preferable.

 

Hi all
If you have 2 crossed loans <80%lvr with one bank and they won't uncross the loans, and you want to refinance both with another bk(s), is it easy to refinance with 2 separate banks one at a time, or does it need to be refinanced at the same time
thanks

 

Yes it should be easy. They will all just have to settle at the same time. The incoming lenders will arrange that with the outgoing.

 

I suppose it is better to ask the existing bank(in this case nab) to uncross both loans first and then refinance to other banks one by one to maximise cash out and serviceability with the first refinanced bank but the nab bank manager doesn't seem interested in uncrossing the loans

 

I am doing an NAB uncross right now - it has taken 3 months so far - but going though.

 

geez. how come so long
were they being un cooperative?

 

Long story. valuations, mistakes along the way (theirs), incorrect documents etc etc.

 

typical nab.worst bank. apart from their servicing, nothing else going for them
we dealt with the laziest,slowest most incompetent bk manager ever
never again

 

You shouldn't deal with them direct, but through a broker.