First of all, when you look at your home you need to protect it. Let’s say you’ve got your home and it’s worth $500,000, and let’s say you’ve got a $100,000 mortgage on it at this point in time.
You find this fantastic deal that you want to go out and buy and it’s $330,000. Typically what happens when someone goes to the bank to make this happen? What does the bank tell them? All the banks advertise that they will do 100% finance on properties and investment properties and everything else. So what they do in this instance is they look at the two values of the property, which is $830,000, and they will just lend you that. So $830,000 gives you about $650,000 maximum lend on the security at an 80% LVR, so of course they can lend you $330,000 or $350,000 because that’s within their LVR parameters.
What they do is, they look at it as one big security pool versus one big loan pool. So they cross-securitise them or cross-collateralise them. Same thing, just one word’s easier to say than the other.
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