Pros and Cons of cross securing investment property loans
Pros
- Convenient and only one application form/ bank to deal with.
- Lenders may provide interest rate discounts for cross collateralization. As total lending is higher and Australia is moving towards a tiered system which rewards higher debt (total not LVR) levels
- Less loan accounts with less fees to pay.
- Easier for tax purposes and multiple splits are not required for the same property across multiple lenders.
Cons
- The lender has the authority to prevent/start the sale of one of the properties or require conditions to the sale. Eg. you may need to rebalance a portfolio back to sub 80% LVR before they will release the additional funds.
- Inability to finance another investment property because of perceived serviceability. this is not so much of a problem to begin with but as you add multiple properties it can add up. but at this stage you look at splitting off the new lending. this can be managed.
- If an investor wants to increase one of the loans on a cross collateralised account, valuation costs can be burdensome because multiple properties will need to have a valuation. However, this depends on the lender- the bigger banks are easier to deal with in this regard. as they will often use automated or short form valuations which speed up the process and reduce costs to all parties.
- The lender may prey on the borrower’s unwillingness to refinance in the future because of the costs involved, so the interest rate offered may not be the best on the market. We are able to counter this to a point by lodging pricing requests on your behalf. However I have seen them only offer close to the new bank with this in mind.
The decision to cross secure Investment properties usually comes down to the individual needs and strategies of the investor. Feel free to drop us a line to see what we can do for you.
