08/02/2024
Never Secure Your Loans with More Than 1 Property!
Recently, a local business owner reached out for advice. He had just sold his investment property and didn't understand why the bank were asking for income details to assess his current situation.
Turns out, his broker had cross-collateralised his loans.
This is where two properties are offered as security to lower the loan-to-value ratio (LVR). There are a number of reasons this would be done, but the main is laziness as it is easier for the banker, or broker to only lodge one loan application.
Because the loan is connected to their other properties, the bank need to assess how much debt they can currently afford and determine how much of the sales proceeds the borrow is eligible to keep.
Unfortunately, since the loan was written interest rates have increased 13 times and significantly reduced this client's borrowing capacity.
The result being the bank need more of their current loans repaid before the borrower gets to keep their sales proceeds.
Had each of their properties' loans been independent, the investment property would be sold, and they could keep whatever funds remain after paying out the loan.
Now, I wasn't able to help this business owner with their loan, but my explanation gave him comfort that he now understands the process and will ensure the mistake does not happen next time.
We have many ways to structure loans correctly and prevent this from happening. Reach out to our team today to discuss.
📱 M: 0430 057 750
📧 E: [email protected]
Authorised Credit Representative Number 532033.
Dexter Loughry is an Authorised Credit Representative of BLSSA Pty Ltd ACN 117 651 760 Australian Credit Licence 391237.
*Loan approval subject to individual circumstances. Only available with participating lenders. Fees and charges may apply
