First and foremost, what exactly is cross-collateralization and why should you avoid it? Cross-collateralization is when you have a loan that is secured by more than one property. This is one of the favourites of banks. This is because it ties you up to them and makes it harder for you to leave, which makes it harder to refinance in the future. It gives the bank a greater security position than what they need. It makes the loan less flexible hence you have a lot less control over what you do with your loans and your properties. In addition to that, it also makes it harder to sell your property because you would need to get the bank’s consent. This may require the bank to revalue all your other properties in order for them to give consent. This would definitely slow down the process by a lot. In conclusion, there is really no benefit to cross-collateralization.
Alternatively, there is also another way for you to access the equity in one property to fund the deposit of another property. To do this you need to keep your loans separate. You will then have one loan for the deposit and one loan for the purchase. Both of these loans will be for the combined purchase of purchasing your new property.
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