Page 7 - Loan Structure Solutions

• If you want to borrow more than 80% of one investment property
and loans are cross-securitised, the mortgage insurer will charge its
mortgage insurance premium on all your lending, not just the new
loan. The additional mortgage insurance cost could be thousands
of dollars.

• If your loans are cross-securitised and you sell a property, the bank
can control your sale funds and demand that you use all the funds
to repay debt (whereas, perhaps you only intended to repay the
debt associated with the property you sold and keep the residual
cash).

• If your loans are cross-securitised, the bank will revalue all
properties at the same time and the risk is that lower valuations
could offset higher ones thereby reducing your ‘available’ equity.
Instead, having loans individually secured allows you to “cherry-
pick” which properties to revalue.

If all your loans are cross-secured and your lender either declines to
advance further borrowings or hikes up interest rates and fees, it might
be very costly to move some or all lending to another lender –
particularly if some of your loans are fixed.

I could write an endless number of examples. However, put simply,
avoid cross-securitisation wherever practical. I’ll show you how to do
this using a case study.

3) Case study: a worked example
Keith and Joanna own their home in Noosa
Waters on the Sunshine Coast. Their home
is worth approximately $1.5 million and they
have a home loan of $370,000. They would
like to start acquiring an investment property
portfolio. They have set a budget of up to
$600,000 on their first acquisition. They
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