What is cross-collateralisation?
By combining the properties as security, borrowers can often borrow up to 100% of the new property's value without needing to pay lender’s mortgage insurance (LMI).
For some clients, this approach can offer stronger negotiating power with a lender, better interest rates, and a streamlined repayment structure. But it’s not without its drawbacks.
When properties are cross-collateralised, they become financially interdependent. A drop in value or loan default on one property can affect the entire portfolio. Selling a property becomes more complicated, refinancing requires all cross-collateralised properties to be revalued, and moving lenders may be costly and time-consuming.
That’s why it’s essential to weigh the pros and cons with expert guidance. While it can suit certain investment strategies, others may benefit from a stand-alone structure that offers greater flexibility and control.
Thinking about using equity to expand your portfolio? Schedule a chat to discuss the right loan structure for your plans.