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Cross securitisation is when your lender has more than one property listed as security for a loan and is often the default way that lenders set up loans that involve multiple properties.
Most of the issues with a loan being cross securitised only become apparent when your circumstances change. Here are some examples of the potential complications that can come from having your loans cross securitised.
1. If you sell one of the properties your lender can decide how the proceeds are used
· Your lender may insist that all proceeds of the sale go towards paying down the loans.
· Your lender may decide that receiving all of the proceeds of the sale is not enough and that they also require you to provide additional funds before releasing the security.
· You will need to re do all of the loan documents that list that property as a security.
2. If you fall behind on your loan payments your lender decides what action to take.
· Your lender can choose to sell some or all of the security properties listed.
· Your lender will choose which of the security properties to sell.
· This could mean selling your home and keeping an investment property when you would prefer to do it the other way around.
3. It is more complicated to access equity available in a property.
· To top up your loan and release equity you will have to organise (and pay for) valuations for all of the properties that are security for the loan.
· If one property has gone up in value and the other has gone down by the same amount you will not be able to access any extra equity.
4. Refinancing some of your debt to another lender will be more difficult
· You will first need to restructure the existing loans with the current lender to remove the property you wish to use as security for the new loan from all other loans.
· Then you will be able to re-finance the newly split out loan to your new lender.
· The alternative is to move all of the loans to an alternative lender.
In most instances Cross Securitisation can and should be avoided to maintain greater loan flexibility into the future. The best way to achieve this is to ensure that each loan only lists one property as security.