The short answer
Cross-collateralisation means a lender holds two or more properties as security for your loans, so the properties are tied together. It can make buying with equity simpler to set up. The trade-off comes later: selling, refinancing or borrowing again against one property may need the lender to revalue and reassess both.
How it works
Say you own a home with equity and buy an investment property with the same lender. Instead of each property securing its own loan, the lender may take both properties as security for both loans. Together they make one pool of security.
Why it matters later
- Selling: when you sell one property, the lender may decide how much of the sale proceeds go to reducing the loans, based on what it needs to hold against the other property.
- Refinancing: moving one loan to another lender may mean moving both, or restructuring first.
- Valuations: a fall in one property’s value can affect your whole position with the lender.
- Buying again: using equity for the next purchase can depend on how the lender views every property together.
How standalone loans differ
With a standalone structure, each property secures its own loan. Some borrowers use a separate loan against their home for the deposit and costs, and a separate loan against the investment property for the rest, and some use more than one lender. Standalone structures can take more set-up, and each lender sets its own rules. Which structure suits you depends on your situation, and the tax treatment is a question for your accountant.
What to ask before you buy
Ask how each loan will be secured, what happens if you sell one property, and whether the loans can be split or moved later. We compare the structures available on our panel and explain them before you decide. General information only, not tax advice.
Mortgage broker at My Finance Consultants. Daniel compares home loan options from a panel of 40+ lenders for refinancers, investors and home buyers, by phone or video, evenings included. About Daniel
General information only. It doesn’t consider your objectives, financial situation or needs, and it isn’t tax, legal or financial product advice. Lending criteria, fees and charges apply.