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Squirrel Mortgages' John Bolton unpicks the tangle of how multiple mortgages and multiple banking can operate, identifying the traps and the opportunities

Squirrel Mortgages' John Bolton unpicks the tangle of how multiple mortgages and multiple banking can operate, identifying the traps and the opportunities

By John Bolton*

There was recently a comment from the banking ombudsman that they had seen a lift in complaints from property investors.

Specifically, that property investors and banks have a different view on how much debt needs to be repaid when a property is sold.

Investors often make the mistake of assuming that individual loans relate to specific properties.

The bank doesn’t see it the same way. As far as they are concerned, loan documents cross-collateralize any new lending against all security held by the bank.

Even if you have multiple legal entities the lender will likely put in unlimited guarantees to achieve the same outcome.

Whenever you sell a property the lender has the right to review your financial situation and can ask you to repay the full proceeds from the sale.

Often investors don’t realize they need to check in with their existing lender ahead of selling a property. At the last minute their lawyer approaches the bank for a discharge and the pressure comes on.

If your financial situation has changed for the worse and you need cash from the sale to cover other debts or to cover an income shortfall, then all of a sudden the bank is in control of this process.

Banks genuinely think they are doing the right thing by you even if you don’t think so. Unfortunately it will be some faceless person in Credit, who doesn’t know you, who is conservative by nature, and who is now making decisions that impact on your life.

By having multiple lenders, no one lender controls all of your properties. This gives you flexibility to approach multiple lenders, and to sell properties without the risk that the lender will take all of the sale proceeds.

It also makes it easier to leverage equity for a new purchase if one lender has said no.

I recently had to refinance one of a client’s properties because his lender had said no to a $20,000 top up to do maintenance on the property. Having his properties across three banks made that easier.

Investors can take this strategy too far and spread themselves across too many lenders. I had a new client who had one property with each of five different banks. Not only is that administratively difficult but she wasn’t getting good pricing because each bank only had a small loan. We helped her get one of her properties debt-free, consolidated her lending across three banks, and got her better pricing.

Having a property debt-free and unencumbered is the best insurance policy.

It also doesn’t need to be your owner-occupied house. Often your house will be worth too much and so difficult to get debt-free.

It will be easier to get an apartment or a low value rental debt-free.


John Bolton is the principal at Squirrel Mortgages. This item first appeared here and is above with permission.

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The scary thing is some of these PI's do their own tax returns.

They think they have their biggest loan against their rental, and small loan against home, so use the interest paid on big loan as expense against rental, minimising profit/tax paid.

They should assume the total loan is proportioned against all property on a per capital value basis. 


"Having a property debt-free and unencumbered is the best insurance policy."

And is known as "over-capitalisation"

anyone under 65-ish who is in that situation should take a serious look at redrawing 30% of equity and finding other investments elsewhere.

Check your yield vs your leveraged yield to find out why.
failing to do is a step towards "dead-capital"


I agree.  My return on equity reduces as my mortgages get paid down.

(think of a hypothetical example where 100% mortage at 5.7% for a net yield of 7%, infinite return on equity, any mortage paid down/own equity invested, reduces this return on these positvely geared properties).

Better uses other than positively geared properties ofcourse follow suit, eg own business or share market


But Simon.  You might manage to get a great return that way, even infinite as you have finely calculated.

But recognise as for actual dollars it could be a very small amount.  With your infinite return you might be able to have a meal at McDonalds - but rarely.

And somebody else on a fully owned property might be able to live well on the income.  Despite what you see as a "low" return rate. 


So when your property becomes mortgage free, it's then open pickings for anyone to claim money or sue - when the bank holds a mortgage it holds a larger security which actually protects the owner from serious claims .  Seems like the bank is your friend!


I dont think so.  If someone sues you, makes you bankrupt and claims the house the bank takes its cut first, the 3rd party gets what is left. 




No, if the property has a big mortgage you are safer because others are more likely to negotiate a solution that suits both parties than initiate a process where the bank ultimately claims nearly all.   Negotiated settlement is more preferable than bankruptcy surely.


I have always been aware that the banks "loan documents cross-collateralize".

First thing is that your lawyer at the time of the transaction should advise of of that.  I expect that despite the large fee, that lawyers frequently don't advise all clients of that.

Secondly, if you have three lenders, all cross collateralised across all your assets, maybe you should see you have three problems rather than one.


"Banks genuinely think they are doing the right thing by you even if you don’t think so."

Banks genuinely have customers best interests at heart, and they genuinely do have a heart, and they are institutions genuinely built on altruism and community spirit, and sometimes they even sponsor genuine disabled people doing stuff.