what the hell is cross collateralisation?

Cross collateralization is a financial arrangement in which a lender uses the collateral from one loan to secure another loan. In the context of real estate, it often involves using equity in one property to secure financing for the purchase of another property. This means that if a borrower defaults on one loan, the lender has the right to seize both properties to recover the outstanding debt.

For example, suppose a borrower owns two properties: Property A, with a home loan secured against it, and Property B, which is owned outright (unencumbered). The borrower wants to purchase a third property, so they use Property B as collateral to secure financing for the purchase. In this scenario, Property B serves as cross collateral for the loan on the third property, meaning if something goes wrong Property B is at risk but Property A is safe as this is not cross collateralized.

While cross collateralization can provide additional security for lenders, it also carries risks for borrowers. If property values decline or the borrower defaults on any of the loans, they could potentially lose multiple properties, not just the one initially used as collateral.

It's important for borrowers to carefully consider the implications of cross collateralization and understand the terms and conditions of their loans before agreeing to such arrangements. Additionally, borrowers may have the option to negotiate alternative financing structures or seek independent legal advice to mitigate the risks associated with cross collateralization.