Cross Collateralization

Cross Collateralization

Collateral, also called security, consisting of funds provided by the borrower to obtain credit. In case of failure to repay debt, the provision rather than to confiscate the remaining amount. Any item of economic value, especially that can be liquidated or converted to cash can be pledged as collateral.

When collateral for a loan serves as collateral for other loans, and it is called cross collaterization. The most common example is when a person wants to buy a new residence when he already owns a house. The property is cross-supplied should be evaluated and indemnified.

As one property can serve as collateral for various loans? The reason is the "loan to value" or LTV. This is the relative amount of the sum borrowed property in terms of its value. As an example, a house which is currently priced at $ 600,000 to $ 300,000 Debt LTV of 50%. That is, the owner has borrowed amount is 50% of the property. Some or all of the remaining cost can be used as collateral for various mortgage or loan. Cross-collateralization can be used to counteract the risk factors involved in financial transactions, ie to enable the lender to avoid the possibility of occurrence of the loss in case of default.

It is mandatory that the location of cross-property secured in the same state as the new property being acquired. Cross-collaterization offers portfolio loans as an option arms and Flex and Flex 3 5 credits, in which initially the interest rate and the amount to be paid remain unchanged for 3 years and 5 years respectively.