4. Use different lenders for each property to avoid cross-collateralising your assets
Cross-collateralising your loans is not recommended, as it will put a major roadblock to building
your property investment portfolio.
For example, if you own a property that you wish to sell and it is cross collateralised with other
loans, your lender may insist that you use the monies from the sale to pay down your loans so
that your portfolio is kept at a certain LVR.
Other reasons:
- The lender can limit your borrowing options, such as only offering a principal & interest instead of an interest-only loan, citing exposure limits as their reason.
- Fees – including exit fees for fixed loans – can be significant, making it very costly and difficult to change lenders.
- Your properties are valued as one asset, so if you have one property which fails to perform it negates the capital growth of your other properties.
- To avoid the risk of cross-collateralisation, choose different lenders for each of your loans.
- Be aware that even if you have sole and separate loans with one lender, many load documents have what’s known as an “all monies” or “all securities” clause which has the same effect as cross-collaterisation.