Cross collateralisation is a finance structure where a single lender is used to finance multiple properties you own. This allows the lender to secure one property against the value of another in the portfolio, thereby tying the two assets together, financially. A cross collateralised structure benefits the lender by providing it with greater security should you fall into financial hardship or try to manipulate the portfolio by purchase or sale of any properties.
The BIG Misconception!
There is much misinformation in the public perception about ‘protection’ that can be achieved by not cross-collateralising the home with an investment. The belief seems to be that if something goes wrong with the investment, then the home will be safe. This is an absolute nonsense. In Australia, if you owe money, especially to one of our major lenders and you have assets, be it your home or your car or any other significant asset, then you will go through a legal process until the debt is paid. In other words, do not believe that by avoiding cross-collateralisation you are also avoiding any possibility of losing your home should anything go wrong in the future!
