How it happens
Say you use equity in your home to buy an investment property. If both loans sit with one lender and both properties secure both loans, the loans are crossed. Lenders often set it up this way by default because it gives them more security.
The problems it causes
- Selling one property. The lender can revalue everything and decide how much of the sale money you keep, or require it to pay down other loans.
- Refinancing. You usually have to move all the crossed loans together, which can limit your choice of lender.
- Lender control. If one property falls in value, it can affect your borrowing against the others.
- Growing a portfolio. Crossed loans can make the next purchase harder to approve.
The alternative: standalone loans
Instead, each property secures its own loan. You can use equity in your home through a separate split secured only by your home, and the investment loan is secured only by the investment property. You keep control of each one, and you can sell or refinance them independently.
Uncrossing your loans
If your loans are already crossed, they can usually be restructured, either with your current lender or by refinancing. It may need new valuations, and sometimes it suits to move one property to another lender. I'll look at your setup and tell you whether it's worth doing.
Questions people ask
What is cross-collateralisation?
Using more than one property as security for your loans with the same lender, so the properties are tied together.
Is cross-collateralisation bad?
Not always, but it gives the lender more control and can make selling or refinancing harder. Standalone loans are usually more flexible.
How do I uncross my loans?
By restructuring with your lender or refinancing so each property secures its own loan. It may need new valuations.
Can I use equity without crossing my properties?
Yes. A separate loan split secured only by your home can fund the deposit for an investment, without crossing them.
