The modern lenders are using a method that is popularly known as cross collateralization to add more security while offering mortgage. This task is completed by placing a lien on another property in addition to the property that is the subjected of the loan. Generally, the hard money commercial lender considers that the property doesn’t give them enough security. Therefore, a cross collateral mortgage has become essential for the lender. If there are more collateral attached to a property, then it lowers the risk of the lender.

 

What is a cross collateral mortgage?

In a cross collateral mortgage, you need to use two properties as collateral for a loan. This type of loan program is popularly known as a blanket loan, this is because one loan covers more than one property. However, this type of lending program is more popular in commercial lending.

 

What is the benefit of cross collateral mortgage?

In reality, the mortgage lender can be at a beneficial position for using cross collateralization, since it gives them more security for the loan. If the borrower defaults, then the lender may foreclose on both the properties. Well, the lender is keen to retrieve the owed amount than foreclosing on the property. This type of loan is beneficial for the borrower as he can effortlessly take out the fund and use it for any other purpose.

 

Are you alert of the disadvantages of this loan?

Before you take out a cross collateral mortgage, you need to be aware that the loan closing can be costly, especially when you close in a cross collateralization. The lien properties need to be appraised, and the lender also requires title searches and title insurance on them. The lender may require physical inspections of both the properties, and repair work is needed prior to closing. Another negative factor is that the borrower may not be able to sell either of the properties. This is because both are tied up in the liens for using a cross collateralized loan.

 

How you can use a cross collateralized loan?

A cross-collateralized loan can be used by a borrower to generate funds to expand his business, if he’s unable to take out a loan from other financial institutions. If you’re unable to refinance your commercial property due to lack of equity in the property, then this loan can be beneficial for you. This loan can be valuable for you if your credit report is blemished, and you’re unable to apply for a new loan on favorable terms. Therefore, using a second property as collateral can help to lower the risk of the lender when he lends to a high risk borrower.

 

What you need to be cautious in cross collateral mortgage?

You need to be cautious as you can lose both the properties if you default on your mortgage payment. Therefore, using two properties as collateral can be a risk for the borrowers. Therefore, you need to be sure that you’ve adequate fund to make payments on this loan. If the lender forecloses on both the properties, then it may show as two foreclosures on your credit record. Thereby, blemish your credit report by showing two foreclosures on your credit report.

 

Therefore, you need to consider the positive as well as negative aspect before you apply for a cross collateral mortgage.