What is collateral/cross security?
Primary security is the main property that the bank will take as security for a loan. The Collateral/Cross security is the second property being used to secure a loan. It is required when the loan amount is higher than the primary property value. This is due to you needing to borrow for fees, renovations etc. If your trying to borrow 100% or more of a new purchase price the bank will want this additional security.
The benefit of this is that you can buy an investment property without any savings. The negative is that both securities are tied together. This has an impact if you try and sell, as the bank will want the remaining loan reduced as well. I have seen lately, that in some situations, settlement will not go through as there is not enough cash to reduce BOTH loans. So before you sell please get some advice. In the event of default the bank also has the right to sell both houses to have debts repaid…We can look at alternative loan structures to avoid this.
If you’ve got any questions, please do not hesitate to give Fiona a call on 0412411823!
Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product