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Cross securitisation vs standalone financing for home loans

Cross securitisation

You may have heard of the term ‘cross securitisation’ and wondered what it meant. More importantly, you may have wondered if it could be of benefit to you or if standalone financing is more suited to your financial position.

The reality is that both options have their merits and will suit different types of borrowers depending on their goals. 

So, what are the pros and cons of both cross securitisation and standalone financing and how can you make them work in your favor?

What is cross securitisation?

Cross securitisation (also known as ‘cross collateralisation’) means that the loan is secured by more than one property. An example of when this might occur is when a homeowner wants to purchase an investment property as part of the same loan their Principal Place Of Residence (PPOR) is under.

What are the pros and cons of cross securitisation?

Cross securitisation is the preferred method of financing by some borrowers because they find it easier to manage just one loan. This format is particularly beneficial to borrowers who have large property portfolios and do not want to take out multiple loans to service their investments. 

Some borrowers also believe it is easier to access their equity in one go; instead of tapping into the equity across a range of properties, the bulk of their equity is housed in one place, under one loan, making it easier to draw upon.

On the other hand, it can be difficult to take out equity if the properties are performing differently. For example, if the values of the properties are increasing (or decreasing!) at differing rates the equity in a more valuable property may be canceled out if another drops in value, meaning you cannot access any equity at all.

Another negative thing attached to cross securitisation is that you will be tied to one lender. Packaging several properties under one loan means limiting your flexibility and sometimes your ability to negotiate lower rates, which means the bank holds the power even if you are a loyal borrower with a large loan and multiple securities.

What is standalone financing?

Standalone financing is quite simple and is the approach the majority of lenders take. Standalone financing means there is one loan for one security. For example, you might have your PPOR as security for one loan and an investment property securing another.

What are the pros and cons of standalone financing?

One of the biggest pros to consider with standalone financing is the freedom you will have if you choose to sell the property or want to add another property to your portfolio. With standalone financing, you do not have to worry about altering any existing loans and you can simply take out another or pay it off when you buy or sell, respectively. Standalone financing is often thought to carry less risk and you will also not be locked in so tightly if you want to try a different lender, refinance one loan, or vary your arrangement between fixed and variable rates you can.

It is important to consider the major downside of standalone financing, which is having multiple loans. This can be difficult to keep track of and can prove less advantageous if all of the loans have different interest rates or additional account-keeping or break fees.

Which is better: Cross securitisation or standalone financing?

It is impossible to advise which type of financing is better without assessing an individual’s financial circumstances closely. 

If you are considering refinancing and want to understand how each option could benefit you, contact our mortgage brokers at (07) 4052 0700.

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