Cross-collateralisation can be a powerful tool for property investors, but it also comes with hidden risks that many buyers overlook. By tying multiple properties to one loan, you may unlock higher borrowing capacity — but you also limit your flexibility if you want to refinance, sell, or change lenders later.
This guide, written by an expert mortgage broker in Brisbane, explains how cross-collateralisation works, when it might suit you, and the key pitfalls to avoid.
Let’s dive in.
What Is Cross Collateralization?
Cross collateralisation is a finance term used when a loan is secured by two or more properties.
If you have a home and want to borrow additional money for an investment property from the same bank, they often cross-collateralise or cross-secure the properties to lend you additional money.
For example, if you’ve got an existing home that might be worth $ 400,000 and you’ve got an existing home loan of $ 240,000, you come to your bank or mortgage broker and say I want to buy a new home for $650,000. You can easily get a new loan of $650 000 using both your existing home plus the new investment property as security.
The typical buyer usually wants to hold onto their properties for 10 to 15 years and is not looking to purchase any other properties. But for those who want to build their portfolio, cross-collateralisation is usually very appealing. It also appeals to banks who get more security against your properties.
When Can Cross Collateralisation Be Used?
Cross collateralisation can be used in the following scenarios:
- When two properties are involved in securing a loan
- When the equity from one property (e.g. an owner-occupied property) is used to purchase a second investment property.
Benefits Of Cross Collateralization
Benefit 1: Borrow 100% of the property price
The obvious benefit of cross-collateralising is that you can borrow 100% of the new purchase price in one loan. It can be helpful to build your portfolio because it means you’re not having to outlay your 10% or 20% deposit. You’re actually borrowing the full purchase price for the new home using your equity.
Benefit 2: Higher borrowing capacity
If you’re cross-collateralising, you have to stay with the same lender as well, and the advantage is some banks will extend your borrowing capacity because it’s lower risk to them. Instead of having one property, they’ve actually got two on the hook if something goes wrong.
Benefit 3: Get a lower interest rate
When you’re cross-collateralising, you can sometimes get a better interest rate.
Why?
Some banks see this as a lower risk because your properties are combined instead of an individual investment loan. The savings can depend on the bank, the total lending amount, and the equity you have in your properties.
Benefit 4: Tax benefits
If your initial loan was for an owner-occupied property, and your next loan is for an investment, you might be able to make a tax claim. Also, if you’re using equity from it, then this is 100% tax-deductible.
Chat with your accountant about how your loan is structured and the tax benefits around it.
Benefit 5: Downsizing
If you plan on downsizing, then cross-securitising is for you. Combining your mortgage with one lender makes your portfolio more simple to manage as there are fewer individual account splits.
How To Qualify For A Cross-Collateralised Loan:
To qualify for a cross-collateralised loan, you must meet some very strict criteria:
- You will need to stay within the mortgage limits.
- If you use a guarantor, they will be required to guarantor all loans within the cross-collateralised structure
- Borrowers under this structure must be either a debtor or a guarantor
Read More: How to use equity to buy a second property.
What Are The Drawbacks Of Cross Collateralisation?
It’s very common for banks to want to cross-collateralise your properties together. It’s just less paperwork, which is a lot less effort for them. If you’re serious about cross-collateralising your loan, you must also understand its disadvantages and downfalls. The better you understand these, the more success you’ll have in working it in your favour.
Cross-collateralising has drawbacks and risks; it is complex, can reduce flexibility and complicate your banking. In other words, you must have all properties with the one bank. It’s less risky for them because they’ve got two properties instead of one. So, if something goes wrong, they can have two properties to sell because they’re all tied together, and you can get caught out that way.
So make sure you really think about it before going ahead with cross-collateralisation.
Your lender will highly recommend it, but you should speak with a mortgage broker to know all the risks and limitations before setting up this structure.
Risk 1: Market downturns
The most significant risk is that all of your properties are connected. So, if 1 of your properties drops in value, this will affect your total portfolio.
Why? Because all your properties are linked— it is like a chain reaction.
Even if the equity in 1 property goes up and the other experiences a significant drop, this will limit your overall equity from increasing.
Risk 2: Losing power over your loan
Since your properties are all linked, issues can arise with the bank if you struggle to repay your home loan. If you fall behind on either of your other loans, you may risk losing your other property.
In this situation, the bank will tell you what you pay and when to keep the loan-to-value ratio in place so you don’t lose your home.
Risk 3: With refinancing a loan comes revaluing
The problem with cross-collateralisation is that when you want to refinance, EVERY property needs to be revalued—not just one.
Due to this, the costs can be much more extensive, and banks will have to get a Variation of Security.
This process can be time-consuming and also puts you at risk of the bank returning with a lower valuation and stopping you from refinancing.
Risk 4: LMI costs WAYYYYY More
LMI is calculated on a sliding scale and generally costs more when your loan amounts are higher. If you have cross-collateralised loans, you could be paying thousands of dollars more.
Let’s look at a real-life example.
If you were buying a second property for $550,000 and were using equity from your original property of $300,000, you’d need to pay $20,096 in LMI costs.
Yep, that is a fair chunk of change.
However, if you went for a stand-alone structure, you could save thousands!
What's The Difference With Stand-Alone Security?
The concept of stand-alone security is that a loan is secured by just one property. You can also use this method to build your property portfolio. For example, you could use your family home as stand-alone security.
Stand-alone or Cross Collateralisation?
Generally speaking, stand-alone is recommended over cross-collateralisation.
This is because, with cross-collateralisation, it can become very difficult to ‘untangle’ the different properties. Stand-alone removes this unnecessary risk.
With cross-collateralisation, if you had three properties ‘tied together’ but wanted to sell one of them, you would have to do the following:
- Value the other two properties
- Reassess your financial position (which could come at a bad time financially)
- Require new mortgage documents to be issued.
Instead, if the properties are structured as stand-alone, you could sell any property and pay it out with the loan secured by it. The lender will not get involved in the current debt or other properties with things like valuations and reassessments.
Factors to Consider Before Cross-Collateralising
Cross-collateralisation can unlock borrowing power, but it requires careful planning. Understanding key factors can protect your portfolio.
Loan-to-Value Ratio (LVR) and Combined Security
Lenders use LVR to measure risk. It compares your total loan amount to the combined value of your properties.
- High LVRs may trigger higher interest rates or lenders mortgage insurance (LMI).
- Low LVRs can improve borrowing capacity and increase lender flexibility.
- Remember: cross-collateralisation combines all properties, so one property’s value affects the total LVR.
Your Future Plans
Think about how long you plan to hold your properties. Consider these questions:
- Will you sell any property soon?
- Do you plan to refinance to a different lender?
- Are you building a long-term investment portfolio?
Cross-collateralisation can complicate sales or refinancing, so plan accordingly.
Impact on Borrowing Flexibility
Tying multiple properties to one loan can limit options:
- Switching lenders may require refinancing all properties.
- Accessing equity for a new purchase becomes more complex.
- Changing one loan may trigger reassessments or extra fees.
Market Conditions and Risk Exposure
Cross-collateralisation links your properties’ values. This can amplify market risk:
- A property value drop affects overall equity.
- Rising interest rates increase repayment pressure.
- Market downturns may limit refinancing opportunities.
- Always model worst-case scenarios before committing.
Key Takeaway
Evaluate your LVR, future plans, borrowing flexibility, and market risks. Careful planning ensures cross-collateralisation supports, not hinders, your property goals.
How To Minimise Risk
A great way to reduce risk around your loans with multiple properties is by working with at least two primary lenders. Buyers often separate their home and investment loans by splitting them between different lenders.
While it is easier just to have 1 lender take care of everything, spreading your loans around will work to your advantage if you get into financial trouble.
But keep the future in mind and always give yourself extra security to ensure you minimise risk.
How To Remove Or Avoid Cross-Collateralisation
Cross-collateralisation can boost borrowing but reduce flexibility. Understanding how to restructure or avoid it protects your portfolio.
Steps to Restructure Existing Loans
If your loans are already cross-collateralised, you can untangle them strategically:
- Speak with your mortgage broker to review your current loan structure.
- Consider refinancing one or more properties into stand-alone loans.
- Ensure each new loan is secured against a single property only.
- Update loan documents to reflect the new security arrangements.
- Notify all lenders and confirm valuations before finalising changes.
Costs Involved in “Untangling”
Restructuring loans can incur fees. Plan ahead to avoid surprises:
- Property valuations: Required for each property in the new loan.
- Discharge fees: Paid to the current lender to release the property.
- Legal fees: Cover new mortgage documents and agreements.
- Potential early exit costs: Some lenders may charge for breaking fixed-rate loans.
Best Practices When Setting Up New Loans
Prevent cross-collateralisation in the first place with careful planning:
- Always request stand-alone security when borrowing.
- Compare lenders’ policies on cross-collateral loans before committing.
- Consider splitting loans across different lenders to reduce risk.
- Keep detailed records of loan terms, limits, and collateral.
When It May Be Worth Keeping vs Removing Cross-collateralisation
Cross-collateralisation isn’t always negative. Evaluate these factors:
- Keep it if you need maximum borrowing power now.
- Keep it if you plan to hold properties long-term and avoid selling.
- Remove it if you want flexibility to refinance or sell individually.
- Remove it if you anticipate market volatility or want easier portfolio management.
Key Takeaway
Cross-collateralisation can be restructured or avoided with careful planning. Understand the costs, follow best practices, and match your strategy to your goals.
Cross Collateralized Loan FAQs
How do I know if my loan is cross-collateralised?
You know your loan is cross-collateralised if the documents list more than one property as security. Another sign is needing bank approval to sell or refinance. Asking your lender directly will confirm if your loan is cross-collateralised.
Is cross-collateralisation good?
Cross-collateralisation is good if you want higher borrowing power or have limited equity. However, it reduces flexibility and exposes all properties to risk. For most borrowers, stand-alone loans are better than cross-collateralisation.
Why do banks like cross-collateralisation?
Banks like cross-collateralisation because it lowers their risk by tying multiple properties together. It also makes switching lenders or refinancing harder. This keeps more control and business with the bank.
Can you remove cross-collateralisation once it’s set up?
You can remove cross-collateralisation by refinancing and splitting loans into stand-alone securities. This usually requires new property valuations and fees. Many borrowers wait until property values rise before removing cross-collateralisation.
Is cross-collateralisation always bad?
Cross-collateralisation is not always bad if you plan to hold properties long-term. It becomes a problem when you want to sell or refinance. Most borrowers prefer avoiding cross-collateralisation for greater flexibility.
What happens if I sell one of the properties?
If you sell a property in a cross-collateralised loan, the lender decides how proceeds are applied. Often, funds go towards reducing other loans. This reduces your control over the money from the sale.
How does cross-collateralisation affect refinancing?
Cross-collateralisation affects refinancing because every property must be revalued. This makes the process slower and adds extra costs. Stand-alone loans are usually more flexible for refinancing.
What’s the biggest risk of cross-collateralisation?
The biggest risk of cross-collateralisation is that all your properties are tied together. If one property drops in value or payments fall behind, all are at risk. The bank can act against your entire portfolio.
What is cross collateralisation in real estate loans?
Cross collateralisation in real estate loans means using two or more properties to secure a single loan. This can boost borrowing capacity in the short term. However, it ties all properties into one structure with shared risks.
How does a cross-collateral loan mortgage differ from a standard home loan?
A cross-collateral loan mortgage uses multiple properties as security, while a standard home loan uses only one. This gives lenders more control but reduces your flexibility. It also makes refinancing or selling harder compared to a single-property loan.
What are the problems with cross-collateralisation?
The main problems with cross-collateralisation include reduced equity access, refinancing delays, and higher risk exposure. Selling individual properties also becomes more complicated. These issues can make portfolio management difficult for borrowers.
How To Know If A Cross-Collateralised Loan Is Right For You
Are you wondering if cross-collateralisation is for you? Book a free assessment to talk to one of our expert Hunter Galloway mortgage brokers. We will help you determine what’s best for your personal situation.
If you are buying or refinancing your home, we can also help walk you through the process. Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts dedicated to helping make your home loan journey as simple as possible.
If you want to get started, please give us a call on 1300 088 065 or book a free assessment online to see how we can help.
Our service does not cost you anything, as we are paid by the lender when your home loan settles.
To chat about your deposit, lending and investment lending options, book a time to sit down with us or feel free to call on 1300 088 065.
The information on this page is general in nature and should not be considered advice. Before you act on this information, you must seek independent legal and financial advice.
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