Well hello there! In this article we’re going to talk about a topic that might sound a bit intimidating at first: cross collateralisation of securities. Don’t worry, I’ll break it down for you in a way that’s easy to understand, with a touch of humour, of course.

First things first, let’s define what cross collateralisation is. Simply put, it’s when a lender uses more than one property as security for a single loan. Let’s say you own two properties, and you want to take out a home loan to renovate one of them. Instead of using just that property as security, the lender might ask you to use both properties. This means that if you default on your loan, the lender can take possession of both properties to recover their money.

Now, let’s talk about the pros and cons of cross collateralisation.

Pros:

1. Lower interest rates: By using more than one property as security, lenders can offer lower interest rates. This is because they have more security, so the risk is lower.
2. Increased borrowing power: If you have more than one property, cross collateralisation can help you borrow more money. This can be useful if you need to fund a large renovation or if you’re buying a new property.
3. Easier approval: Cross collateralisation can make it easier to get approved for a loan, especially if you have a poor credit history.

Cons:

1. Limited flexibility: If you cross collateralise your properties, you won’t be able to sell one of them without the lender’s permission. This can be frustrating if you want to downsize or change your investment strategy.
2. Risk to other properties: If you default on your loan, the lender can take possession of all the properties used as security. This means that your other properties could be at risk, even if they have nothing to do with the loan.
3. Higher fees: Cross collateralisation can come with higher fees, including valuation fees and legal fees.

So, there you have it, folks! Cross collateralisation can be a useful tool for some borrowers, but it’s not without its risks. If you’re considering using this strategy, make sure you weigh up the pros and cons carefully and seek advice from a mortgage broker or financial advisor.

And remember, if you need help with your home loan, I’m here to assist you. Just give me a call, and we’ll chat over a cup of coffee. Until next time, happy borrowing!