A guide to cross-collateralisation

5 mins to read | 13 February 2024

Cross-collateralisation can be used as a home loan structuring strategy to start or grow your property portfolio. It involves using the equity in one property to secure a home loan for another property.

Being aware of how cross-collateralisation works can help you plan a strategy to achieve your financial goals faster. Athena’s Power Up home loan gives you flexible loan structuring options to support your strategy if you’re looking to cross-collateralise multiple properties.

Cross-collateralisation is where you use more than one property to secure a home loan. This is different to a typical mortgage which is secured by only one property.

For example, you currently own the home that you live in and wish to purchase an investment property. Instead of using your savings for the investment property deposit, you could tap into the equity of your home. To access this equity, you can increase the loan for the home you live in by what you need to purchase an investment property. This means that loan will now be secured by two properties:

• The home you live in

• The investment property

There are more complex scenarios where more than two properties are secured to one home loan, but the above is one of the most common examples.

Let’s look at an example.

Pete and Deb currently live in their home that is valued at $1 million. They owe $600,000 on their home loan. Instead of using their savings, they want to use their home equity to buy an investment property valued at $800,000. 

Through cross-collateralisation, they can increase their current loan by $800,000 and secure this loan with both their home and investment property.  

This means they could borrow 100% of the purchase price of their new investment property. By using the combined the value of both properties, totalling $1.8 million, their LVR would still be below 80% and they would not have to pay Lender’s Mortage Insurance (LMI). 

To calculate their LVR, we use the total amount they need to borrow to purchase the new investment property, plus what they currently owe on their loan and divide that by the combined value of both properties ($800,000 for new purchase + $600,000 currently owed / $1.8 million combined property value). 

As the LVR is below 80%, Pete and Deb could borrow up to the full 80% ($1.44 million / $1.8 million) and use the additional $40,000 towards upfront costs involved in the investment purchase such as stamp duty and conveyancer fees. Pete and Deb could potentially avoid having to spend a single cent of their savings on their investment property purchase. 

By unlocking the equity in your current property, you don’t need to save up for a big deposit which could save time and allows you to put your savings towards renovations or another investment.  

With cross-collateralisation, the value of your properties is combined. You could reduce your loan-to-value ratio (LVR) and score a lower interest rate with Athena AcceleRATES. With AcceleRATES, the more you pay down your loan, the more we'll lower your rate. Automatically. It’s an Aussie first to reward you for reducing your loan.

For example, you live in your home that is valued at $500,000. You’ve been paying down extra on the loan and the current loan balance is $275,000 which gives you an LVR of 55% ($275,000 / $500,000 X 100 = 55%). You also have an investment property valued at $400,000 with a loan balance of $252,000, and LVR of 63%. If you cross-collateralise both properties, the combined value would be $900,000 with a total loan balance of $527,000. This now gives you an LVR of 59%. You'll now qualify for Athena's CelebRATE ≤60% LVR tier and will score a lower rate on all properties in your new loan.

You may be able to claim tax deductions on your investment property through cross-collateralisation even if one of the properties secured to the investment loan is an owner-occupied property. If you have used equity to purchase an investment property, your investment property purchase could be completely tax-deductible. Remember we’re not able to give you tax advice so make sure you speak to your professional adviser about the right strategy for you! 

Cross-collateralisation means you deal with one lender and your home loans are centralised. This could make your property portfolio management easier compared to having multiple loans with different lenders.

At Athena, you only need to complete one application and you can structure your loan however you want with up to 10 split loans. Each split loan will have its own statement. You could have one split loan for investment purposes, which means you’ll only need one statement for tax purposes.

This can be a concern if the properties do not perform similarly. For example, you have two properties secured against one loan. If one property has increased in value and the second property has dropped in value, the net effect on the total value may be zero. You won’t be able to access the equity in the property that increased in value because the overall equity in the portfolio didn’t increase. 

Similarly, if you were to sell one of your properties in a cross-collateralised portfolio, your lender may require you to reduce the loan balance within the portfolio to keep the LVR ≤80%.  

Just like with a loan that is not cross-collateralised you will need to ensure that the LVR does not exceed 80%, or you may have to pay Lenders Mortgage Insurance (LMI).  

If you want to refinance or sell a property, most lenders will require a re-valuation of each property that is cross-collateralised. If the lender charges for each valuation, this could mean increased costs. At Athena, we don’t charge fees on our Straight Up or Power Up home loans, so you don’t need to worry about increased costs with cross-collateralisation.

Access your equity and max your investment property returns with Athena. Our fee-free Power Up home loan can help with your cross-collateralisation strategy. You only need to submit one application and we’ll handle the rest!

Our Power Up home loan is boosted with exclusive features including multi-offsets and split loans. If you cross-collateralise multiple properties, you can structure your loan however you want with up to 10 split loans. You could have one split per property or split it by loan purpose e.g. one split for owner occupied and a second split for investment. Use multi-offsets to set easily aside savings for your next project or investment. We won’t hold you back!

Chat to our experienced Investor Expert team about cross-collateralisation. They can help review your situation and give you options to consider.