Page 6 - Loan Structure Solutions

don’t repay any debt (because you believe no debt relates to that
property), the onus is on you to demonstrate to the ATO that you are
correct. If there’s any ambiguity (due to poor records), you risk the
deduction for interest being denied by the ATO. A correct loan structure
will ensure you have a sound basis for claiming deductions through
separating loans by property and purpose.

2) Cross-securitisation – that’s a big word!

The definition of cross-securitisation is simply where a loan is reliant
upon more than one property as security. You can have multiple loans
secured by one property (that’s okay), but not multiple properties
securing more than one loan.

Some advisors suggest that cross-
securing your property portfolio gives
rise to higher risk because if all
properties are securing all loans and
something goes wrong, the bank can sell
the lot. I don’t subscribe to this theory.
Firstly, most mortgage contracts have ‘all
monies’ clauses which essentially allows
a lender to consolidate all loans
associated with the same borrower
regardless how they are structured. Also,
from a practical perspective, if you get
into financial strife, it’s unlikely you’ll only
default on one mortgage and keep the repayments up on the rest.
More likely than not, you won’t be able to meet any repayments.

The real reason for avoiding cross-securitisation is to maintain your
flexibility and keep your banking as simple as possible. There are
literally hundreds of examples of how cross-securing loans can have
negative consequences and we see it every day in our business. Some
examples include:

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